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Chapter 13 Bankruptcy
Chapter 13 Bankruptcy
Eligibility of a Chapter 13 requires that your unsecured debts are less than
$419,275.00, while secured debts must be less than $1,257,850.00.
In order to file you must have tax returns for the last four years unless you were not required to file. During the plan you must timely file your tax returns and tum
over copies to the chapter 13 trustee as soon as you file a return.
If you previously dismissed a Chapter 7 or Chapter 13 proceeding, you are ineligible for filing either type of case for 180 days from a previous dismissal of a prior filing of any type if Debtor's previous case was dismissed for:
1. Failure to attend creditor's meeting;
2. Dismissed due to a willful failure to appear before the court or comply with court orders;
3. If you dismissed your previous case voluntarily, after a creditor sought relief from the bankruptcy court to recover property upon which they held a lien, then the 180 days applies.
In completing the schedules, debtor must list all creditors and all debts, including debts owed to family members.
Debtor must disclose all income, including frequencies of income.
All real and personal property of debtor must be listed, regardless of the nature of their interest. Debtor must accurately list monthly living expenses.
If the debtor is married, they must provide financial information about the spouse as requested to evaluate the household income.
The automatic stay applies if this is a first time filing of a chapter 13. There are special automatic stays in Chapter 13 proceedings to protect co-debtors. In other words, the co-debtor is protected by a Chapter 13 filing, while in a Chapter 7 the co-debtor is not.
Foreclosures can be stopped in a Chapter 7 and a Chapter 13 proceeding. In a Chapter 7 proceeding, it can be lifted, while in a Chapter 13, the creditor may be forced to allow past payments to be caught up over a reasonable time. In all cases, foreclosures must not have been completed.
All payments in a Chapter 13 proceeding must be timely made.
In a Chapter 7, all reaffirmed debts are new debts and they survive the bankruptcy and if payments are not made, foreclosure or repossession may be possible, as well as a deficiency judgment thereafter.
In Chapter 13 cases, unsecured creditors must file a claim to participate in distribution. Their claim must be filed within ninety (90) days of the creditor's meeting. Governmental units have up to 180 days.
In Chapter 13 proceedings, debtor must file a repayment plan with the Petition within fourteen (14) days of filing.
There are three types of claims in a Chapter 13 proceeding:
1. Secured Debts;
2. Priority Debts (Pay in full with few exceptions);
3. Unsecured Debts.
Priority Debts include child support, and it must be paid, although it can be reduced if payee agrees.
Secured claims must be paid in full in a Chapter 13 plan unless collateral is worth less than what is owed. If so, the debt maybe subject to being split into secured and unsecured. This process is known as lien stripping or cramdown. Exception to lien stripping or cramdown is that a purchase money security interest in a motor vehicle must be paid in full it was incurred within 910 days of filing for a motor vehicle.
Lien Stripping or cramdown is not allowed if debt was incurred within one year and was incurred to buy the collateral.
With respect to home mortgages, debtor should continue regular scheduled payments and, if in arrears, should catch up the arrearage as stated in the plan, regardless the debtor must stay current. Payments of other secured debts should continue and be timely paid even after the chapter 13 has been filed. Payment may be paid directly to the creditor or to the chapter 13 trustee depending on local practice. Sums paid directly to a creditor may be deducted from what should be paid to the trustee if acceptable with the trustee.
Unsecured claims: Payment of secured debts and Priority debts must be paid. what is left, i.e., all other disposable income of the debtor over the applicable commitment period (3 or 5 years), must be paid to unsecured creditors as long as creditor receives as much under the plan as they would if debtor's assets were liquidated under a Chapter 7 proceeding.
Debtor must start making payments to the trustee within thirty (30) days of filing, even if a plan has not been approved. Payments are made to the trustee, who holds this money until such time as the plan is approved and then distributes accordingly.
Confirmation hearings at the Bankruptcy Court must be held within 45 days of the creditor's meeting. If the Chapter 13 plan is confirmed, the Chapter 13 trustee will distribute funds in accordance with the plan.
If the plan is rejected by the court, debtor may file a modified plan. Debtor may convert the case to a Chapter 7 proceeding, subject to eligibility.
If a plan is not confirmed in a Chapter 13, the trustee can keep some of the funds for his or her costs.
It is possible to modify a Chapter 13 plan after it has been approved, due to changes in events, i.e., missed payments, reductions in income, etc.
Creditors and debtors are bound by the confirmed plan. Debtors must make regular payments to the Chapter 13 trustee, directly or by payroll deduction.
Debtor must live on a fixed budget for the duration of the plan. Debtor cannot incur any new debts without permission of the Chapter 13 trustee.
Inheritance, life insurance paid due to some one’s death, gambling or lottery winnings, tax refunds as well as windfalls must be paid over to the Chapter 13 trustee. Additional earned income may have to be paid over to the Chapter 13 trustee. Increases in income or decreases in living expenses must be reported in a Chapter 13 and may require possible plan adjustments.
Failure to make plan payments will be cause for a Chapter 13 proceeding to be dismissed.
Failure to pay any post filing domestic support obligation or make required tax filings during the case will cause dismissal. Tax returns must be provided to the Chapter 13 trustee as soon as they are filed each year. Delays in filing tax returns
is not acceptable. In addition to providing tax returns to the Chapter 13 trustee, any changes in annual income will become significant to the Chapter 13 trustee.
Chapter 13 discharge eligibility:
1. All payments have been made;
2. Certify all domestic support payments have been made;
3. No discharge in a prior case if the discharge was obtained within two (2) years in a Chapter 13 and four (4)years in a Chapter 7;
4. Must have completed Financial Management Course. Certain obligations are not discharged in chapter 13:
Sectio11 1322(b)(5): claims for mortgage default amounts which are to be cured in the plan;
Section 523(11)(5 ), (8), (9): claims for (5) spousal, child, or family support in connection with an agreement or court decree or order; (8) claims for federally guaranteed educational loans, and (9) damages in connection with a personal injury or death arising out of the debtor's drunk driving or driving under the influence of drugs. However, debtor's obligation to pay ex-wife periodic payment on account of property settlement agreement maybe dischargeable.
Criminal restitution; these claims are not dischargeable at the completion of payments pro vided for under the plan.
A prepetition claim that was not scheduled or provided for in the plan and for which no proof of claim was filed will survive the chapter 13; it is not discharged. Al though the creditor will be barred from attempting to collect on the debt while the chapter 13 is in progress, the creditor may resume collection following dismissal or final discharge in the case.
Income taxes remain dischargeable in chapter 7 and chapter 13, but the chapter 13 super discharge for taxes is eliminated. some tax liabilities under Code § 523(a)(1) no longer have the super-discharge remedy in chapter 13 and are basically dischargeable using the same criteria as in chapter 7. Thus, income taxes for which tax returns have not been filed, or were filed but filed less than 2 years ago; taxes in connection with fraudulent tax returns; and taxes in connection with the debtor's willful attempt to evade or defeat the tax are no longer dischargeable in chapter 13.
Fraud under § 523(a)(2)
Debts incurred by fraud, misrepresentation, false pretenses.
Fraud or defalcation while in a fiduciary capacity, or embezzlement or larceny, per Code §523(a)(4)
Willful or malicious injury or wrongful death under Code § 1328(a)(4) Restitution or damages awarded in a civil case based on the debtor's willful or malicious injury, resulting in injury or death to a person.
But note, although the chapter 13 discharge under § 1328 as amended excepts damages for "willful or malicious" injury, the language for discharge in chapter 7 requiring the injury to be both "willful and malicious" under § 523(a)(6) is unchanged; thus, it is easier to discharge claims based on injury or wrongful death to person in chapter 7 than in chapter 13. This may impose a narrower discharge in chapter 13 than in chapter 7.
The Reform Act added a more thorough and broader definition of "domestic support
obligation." 11 U.S.C. § 101(14A).
Debtor's obligations to former spouse were in nature of dischargeable "allocation of debts, rather than of 'alimony, maintenance or support' and did not meet statutory definition of domestic support obligation.
Husband had been ordered to assume certain credit card debt, pay ex-wife her attorney's fees, and pay ex-wife $70,000 to compensate for the increase in debt on the house that spouse had brought to marriage when the parties were married. The husband then filed chapter 13 bankruptcy. The spouse objected, asserting that the obligations were in the nature of domes tic support.
The court disagreed, observing that the marital property and support order did not describe those particular debts as domestic support, and observing that the ordered payments were not figured into the spouse's living expenses. The court held in dicta that the determination of whether the debt was in the nature of domestic support was a matter of federal, not state, law.
The court observed that the family law court had not factored the payments into the spouse's living expenses, and did not describe the payments as in the nature of family sup port. The court held that the bankruptcy court should examine the underlying facts and circumstances to determine the nature of the obligations.
Super-discharge survives as to certain debts
These debts maybe discharged:
i. Willful and malicious injury to property (but not persons) under Code § 523(a)(6)
ii. Tax penalties and other penalties owed to governmental units described at § 523(a)(7);
iii. Under Code § 523(a)(l0) debts that were subject to a prior bankruptcy in which the debtor was denied, or debtor waived, a discharge;
iv. Debts arising from a judgment in connection with fraud or defalcation against a financial institution described at § 523(a){l1);
v. other debts described at § 523(a)(12) in connection with financial institutions;
vi. A debt owed to an ex-spouse pursuant to a marital property agreement as described at § 523(a)(15):
These must not be for support of ex-spouse or child but would be payment of a debt or attorney’s fees provided for by domestic court or settlement agreement.
vii: Debts incurred to pay non-dischargeable tax obligations under
§ 523(a)(14);
viii. Debts arising from property settlements in divorce or separation proceedings under § 523(a)(15);
vii. Certain homeowners' association debts described at §523(a)(16);
viii. Certain fees owed by prisoners as described a t § 523(a)(17);
ix. Certain debts owed to pensions, stock-bonus or similar plans as described a t § 523(a)(18);
x. Certain debts arising from violations of securities laws or regulations as described at §523(a)(l9).
4.19(e) Hardship discharge
At any time after confirmation and before the payments provided for in the plan have been paid a "hardship" discharge may be granted in chapter 13 where the debtor's failure to complete the payments is not his or her fault, the amount paid to date to the unsecured creditors meets the liquidation test (they have received at least what they would have received had the debtor filed in chapter 7 instead, and modification of the plan to facilitate further payments is not practical.
A hardship discharge discharges all debts except mortgage default payments under § 1322(b)(5), for any claim described a t § 523 (a) (debts excepted from discharge in chapter 7), and any post-petition claim for which approval of the trustee was not previously granted if such approval could have been obtained and was not.
4.20 DENIAL OF DISCHARGE IN CHAPTER 13 4.20(a) Chapter 7 and 13 compared
In chapter 7 a proceeding objecting to the debtor's discharge under § 727 must be filed no later
than 60 days following the first date set for the meeting of creditors. Denial or revocation of discharge may be found for a variety of grounds under the bankruptcy Code § 727.
Denial of discharge in chapter 13 is treated in an entirely different frame of reference.
Ordinarily, the debtor is entitled to a discharge if he or she completes payments provided for in a confirmed plan: 19'4 That is essentially, the only requirement for obtaining final discharge. The granting of the discharge is mandatory, as the code language uses the word "shall." Technically, the various specific grounds for denial of discharge in chapter 7 prescribed by 11 U.S.C. § 727 do not apply in chapter 13. Nevertheless, in appropriate circumstances there is a procedure, and grounds for, denial of discharge in chapter 13.
I
4.20(b) Grounds for denial of discharge In chapter 13
In Chapter 13 the procedure for denial of discharge is not a motion to deny discharge per se, but rather a motion to dismiss the case for cause, or convert it to chapter 7, pursuant to 11 U.S.C. § 1307(c).
The motion may be made by request of a party in interest (which would include the chapter l3 trustee). or the United States Trustee. The various grounds are specified in § 1307(c), and include
(1) unreasonable delay by the debtor that is prejudicial to creditors;
(2) nonpayment of any fees and charges required;
(3) failure to file a plan timely;
(4) failure to commence making timely payments;
(5) denial of confirmation of a plan;
(6) material default with respect to a term of a confirmed plan;
(7) revocation of confirmation and denial of confirmation;
(8) termination of a confirmed plan by reason of the occurrence of a condition specified in the plan other than completion of payments under the plan;
(9) (on motion of the U.S. Trustee), failure to file, within 15 days of filing the petition, all other required documents;
(10) (on motion of the U.S. Trustee), failure to timely file information required under section 521(2) (statement of intentions).
This list is not exclusive, and grounds for denial may be based on other factors.
The chief factor is good faith, and a motion for dismissal (which of course would result in denial of discharge) may be made on this basis.
Note however, that this motion should be brought before the final discharge is granted, because once the debtor has completed payments under the plan and been given a discharge, technically the debtor is entitled to the discharge, without exceptions.
Section 1328(a), which governs discharges in chapter 13 cases. unequivocally states that "the court shall grant the debtor a discharge “after completion by the debtor of all payments under the plan. The language of this section is unambiguous and provides no exceptions. Thus, since the debtor has completed all payments under her plan, the court must grant the debtor her discharge.
4.20(c) Denial for failure to pay all domestic support obligations
BA PCPA a mended section 1328- effect of discharge in chapter 13, to deny discharge unless the debtor has kept current in his or her post-petition court-ordered domestic support payments, and has filed a certificate that such payments are current. § 1328(a). The statute does not state when
such a certificate should be filed, but presumably within a short period of time before or after the final payment in the plan has been made.
4.20(d) Denial of discharge of debtor in prior chapter 7 case
Where discharge in chapter 7 is denied based on certain grounds set forth in § 727, the debtor is forever barred in a future chapter 7 from bankrupting debts listed or that could have been listed in the case in which discharge was denied, pursuant to 11 U.S.C. § 523(a)(10). The grounds on which a denial of discharge under § 727 results in permanent loss of right to discharge, in a future chapter 7, debts that were or could have been listed, are enumerated in §523(a)(l0).
However, the denial of discharge of debts any future chapter 7, as prescribed by § 727, does not limit the discharge of those debts in a chapter 13 case, absent bad faith. The exceptions to
chapter 13 discharge found in 11 U.S.C. § 1328(a) do not include debts described in § 523(a)(10).
Thus, assuming the chapter 13 is filed in good faith, a chapter 13 filing may help the debtor es cape the dreadful consequences of a chapter 7 denial of discharge under §727.
4.21 REVOCATION OF DISCHARGE
A motion by a party in interest, made within one year following the granting of a discharge, to revoke a chapter 13 discharge may be made only where (1) such discharge was obtained by the debtor through fraud, and (2) the requesting party did not know of such fraud until after such discharge was granted.
Debtor FILING CLAIM ON BEHALF OF CREDITOR
As in chapter 7, in chapter 13 cases the debtor may file a proof of claim on behalf of a creditor who has failed to file a proof of claim within the time period required. Creditors ordinarily have 90 days from first date set for the meeting of creditors in which to file proof of
claims. I n the event the creditor does not file a timely claim, the debtor may file one on behalf of the creditor du ring the 30 days following the expiration of the 90-day period. I n a chapter 13 the debtor should take pains to assume that secured and non-dischargeable debts have proofs of claim on file. However, it suggested by some in authority that the debtor not file proofs of claim for general unsecured (i.e., unsecured dischargeable) debts; as long as they are listed in the schedules (and have thus creditors have received notice) a general unsecured debt for which a proof of claim has not been filed will not be paid, and will be discharged upon final discharge in the case.
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