Commencing a Chapter 13 Case
–A Chapter 13 bankruptcy case begins with the filing of the bankruptcy petition.
–Upon the filing of the petition an automatic stay arises that prohibits creditors from taking any further action to collect a debt or enforce a judgment.
–A Notice of Commencement of Case is electronically served on all creditors who have subscribed to the national database or by mail to all others.
–This Notice provides each recipient with the date, time and place of the meeting of creditors and confirmation hearing, as well as the last date to file for a determination of whether debt should not be discharged.
–At the time of filing of the petition or within 15 days Schedules of personal and real property, exemptions, priority debt (taxes, domestic support obligations, etc.), secured debt, unsecured debt, income and expenses must be filed.
Chapter 13 Trustee and Creditors
–Unlike Chapter 7 trustees, Chapter 13 trustees are not empowered to liquidate assets, but rather will evaluate asset values alongside income and expenses to determine if the plan payment is the debtor’s best efforts.
–The Statement of Financial Affairs filed by the debtor is reviewed by the Chapter 13 trustee for complete disclosures in response to a series of questions, income over the last 3 years, transfers, repossessions, and seizures made within 2 years (most trustees will ask about over the last 4 years), and interests in any corporate or business entities.
–Creditors have the right to object to the Chapter 13, but have no voting rights, as they would have under a Chapter 11 plan.
–Mortgage holders and auto finance companies require continue payments for the debtor to retain property rights. Auto financing entered into within 910 days of the filing of the case cannot have the value of their collateral reduced to the current value (cram down).
Who May Be a Debtor and Debtor’s Duties
–Chapter 13 is intended to provide a vehicle through which people facing financial difficulty attempt to keep their property while using their Chapter 13 plan to cure payment defaults, typically only to their mortgage lender.
–General unsecured debt that is liquidated, matured and not contingent cannot exceed $336,900, and secured debt cannot exceed $1,010,000. The determination of what is secured and unsecured can be subject to objection and litigation in a Chapter 13 case.
–Debtors are required to complete a credit counseling course prior to filing and must complete a financial management course within 45 days of confirmation of a Chapter 13 plan.
–Beginning each month after commencement of the Chapter 13, debtors must begin making the regular monthly mortgage payment to the first and the second (until the second may be deemed wholly undersecured), and regularly monthly mortgage payments may now include an escrow for taxes and insurance (thereby increasing monthly payments).
The Chapter 13 Plan
–Also at the time or within 15 days of the petition there must be filed a Chapter 13 repayment plan that will set forth how mortgage default payments will be cured over a 36 to 60 month period of time, as well as treatment of other debt repayment, if any. Depending upon the jurisdiction, plans may be proposed for as little as 0% being paid to general unsecured creditors.
–Under BAPCPA the period during which debtors must commit to a Chapter 13 plan will be dictated by whether their annualized monthly income is more or less than the median income in their Metropolitan Statistical Area as compiled by the Census Bureau.
–Other requirements as a condition to court approval (confirmation) of a Chapter 13 plan include: submitting tax returns, proof of income and proof of monthly expenses to the Chapter 13 trustee, as well as plan payments calculated from disposable income or the curing of default payments. r all plan payments are made during the term of the plan and the total amount required, the Chapter 13 trustee will file a final report upon which the debtors receive a discharge. In the event the second mortgage is deemed wholly undersecured, it may be avoided from title as prescribed by order of the court.
Advantages of Chapter 13
–Chapter 13 affords debtors the opportunity to retain their homes, as long as they make regular monthly payments and plan payments.
–Wholly undersecured junior mortgages may be removed from title upon entry of Chapter 13 discharge.
–Judicial liens may be removed.
–Auto loans that were made more than 910 days may be subject to being reduced to the value of the motor vehicle with payments made through Chapter 13 plan.
–Foreclosures, seizures, garnishments, levies, and collection efforts are stayed during the course of a Chapter 13 and are permanently enjoined upon entry of the discharge.
–Taxes are generally nondischargeable, but may be paid with post petition interested abated upon full payment and entry of the Chapter 13 discharge.
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"Debtors are required to complete a credit counseling course prior to filing"
The above would appear to give creditors a distinct advantage and limit the right of a consumer to even file a petition for relief under chapter 13. Any "pre-petition" requirement puts the debtor at extreme risk and limits their access to protection under Section 362..
This requirement surely was added to the latest revision of the bankruptcy law written by creditors and designed to limit the consumers ability to avail themselves of the protection of the bankruptcy code.
If the credit counseling must be completed prior to filing, the automatic stay wouldn't protect the debtor until they have completed this Draconian requirement.
I ran a bankruptcy servicing company for a local bankrutpcy law firm some years ago and this was not in the previous code. Sad that the Congress let the banks and credit card companies write the new law.