Chapter 13 Bankruptcy: Keep Your Property & Repay Debts Over Time

By Cara O'Neill

Stop creditors. Get more time to pay

Chapter 13 bankruptcy offers unique debt solutions not available in Chapter 7 bankruptcy. Yes, you’ll pay into a repayment plan. But your money will go toward the debts that matter most—like your mortgage, car loan, support obligations, and taxes. Remaining debts, such as credit card balances, medical bills, and utility bills, usually get only a fraction of what you owe.

Some of Chapter 13 bankruptcy’s other features include allowing filers to:

• keep all property
• avoid foreclosure and vehicle repossession
• pay the fair market value for a car, and
• stop lawsuits, wage garnishments, and bank levies.

This revised edition covers all the latest changes in bankruptcy and is eco-friendly—we’ve moved many tables and forms online!

With Downloadable Worksheets and Sample Forms

Get more than 40 additional resources, including samples of completed bankruptcy forms, fillable financial worksheets, current income and exemption charts, motions, and more (details inside).

• Language: English
• Publisher: NOLO
• Release date: Jun 3, 2022
• ISBN: 9781413329742

Cara O'Neill

Cara O'Neill is a bankruptcy and litigation attorney in Northern California and a legal editor and writer with Nolo. Before joining Nolo, she practiced in the areas of criminal and civil litigation, and bankruptcy. She also served as an administrative law judge and taught law courses as an adjunct professor. In 1994, she received her law degree from the University of the Pacific, McGeorge School, graduating Order of the Barristers—an honor society recognizing excellence in courtroom advocacy. Cara has edited, authored, and coauthored several Nolo books, including How to File for Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, The New Bankruptcy, Everybody’s Guide to Small Claims Court, and Credit Repair.

Book preview

Cover: Chapter 13 Bankruptcy: Keep Your Property & Repay Debts Over Time by Attorney Cara O’Neill

Get Updates and More on Nolo.com

Go to this book’s companion page at:

www.nolo.com/back-of-book/CHB.html

When there’s an important change to the law affecting this book, we’ll post updates. You’ll also find articles and other related materials.

More Resources from Nolo.com

Legal Forms, Books, & Software

Hundreds of do-it-yourself products—all written in plain English, approved, and updated by our in-house legal editors.

Legal Articles

Get informed with thousands of free articles on everyday legal topics. Our articles are accurate, up to date, and reader friendly.

Find a Lawyer

Want to talk to a lawyer? Use Nolo to find a lawyer who can help you with your case.

The Trusted Name

(but don’t take our word for it)

In Nolo you can trust.

THE NEW YORK TIMES

Nolo is always there in a jam as the nation’s premier publisher of do-it-yourself legal books.

NEWSWEEK

Nolo publications … guide people simply through the how, when, where and why of the law.

THE WASHINGTON POST

[Nolos]… material is developed by experienced attorneys who have a knack for making complicated material accessible.

LIBRARY JOURNAL

When it comes to self-help legal stuff, nobody does a better job than Nolo …

USA TODAY

The most prominent U.S. publisher of self-help legal aids.

TIME MAGAZINE

Nolo is a pioneer in both consumer and business self-help books and software.

LOS ANGELES TIMES

16th Edition

Chapter 13 Bankruptcy

Keep Your Property & Repay Debts Over Time

Attorney Cara O’Neill

Logo: Nolo

SIXTEENTH EDITION

JUNE 2022

Editor

CARA O’NEILL

Book & Cover Design

SUSAN PUTNEY

Proofreading

JOCELYN TRUITT

Index

UNGER INDEXING

Printing

SHERIDAN

ISSN 2576-716X (print)

ISSN 2576-7178 (online)

ISBN 978-1-4133-2973-5 (paperback)

ISBN 978-1-4133-2974-2 (ebook)

This book covers only United States law, unless it specifically states otherwise.

Copyright © 1995, 1996, 1998, 1999, 2001, 2003, 2005, 2006, 2008, 2010, 2012, 2014, 2016, 2018, 2020, and 2022 by Nolo. All rights reserved. The NOLO trademark is registered in the U.S. Patent and Trademark Office. Printed in the U.S.A.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission. Reproduction prohibitions do not apply to the forms contained in this product when reproduced for personal use. For information on bulk purchases or corporate premium sales, please contact [e-mail].

Please note

Accurate, plain-English legal information can help you solve many of your own legal problems. But this text is not a substitute for personalized advice from a knowledgeable lawyer. If you want the help of a trained professional—and we’ll always point out situations in which we think that’s a good idea—consult an attorney licensed to practice in your state.

Acknowledgments

This book wouldn’t be possible without the original author, Stephen R. Elias. Steve wrote many Nolo books, including The Foreclosure Survival Guide: Keep Your House or Walk Away With Money in Your Pocket and The New Bankruptcy: Will It Work for You? and he was the coauthor of How to File for Chapter 7 Bankruptcy. Steve was a practicing attorney in California, New York, and Vermont before joining Nolo in 1980. Over his long career, he was featured in such major media as The New York Times, The Wall Street Journal, Newsweek, Good Morning America, 20/20, Money magazine, and more. He has been missed since his passing in 2011.

Thanks must also go to attorneys Kathleen Michon and Patricia Dzikowski, both of whom have had a hand in significantly shaping this book over the years.

About the Author

Cara O’Neill is a bankruptcy attorney in Northern California and a legal editor with Nolo. She has been practicing law in California for more than 25 years. Prior to joining Nolo, she served as an administrative law judge, litigated both criminal and civil cases, and taught law courses as an adjunct professor. She earned her law degree in 1994 from the University of the Pacific, McGeorge School of Law, where she served as a law review editor and graduated a member of the Order of the Barristers—an honor society recognizing excellence in courtroom advocacy. Cara authors and coauthors a number of Nolo books, including How to File for Chapter 7 Bankruptcy, The New Bankruptcy, Money Troubles, and Credit Repair.

Table of Contents

Part I: Is Chapter 13 Right for You?

1How Chapter 13 Works

An Overview of Chapter 13 Bankruptcy

Debts Discharged in Chapter 13 Bankruptcy

Chapter 13 Bankruptcy and Foreclosure

Special Chapter 13 Features: Cramdowns and Lien Stripping

Is Chapter 13 Right for You?

Alternatives to Bankruptcy

2The Automatic Stay

How the Automatic Stay Works

How Long the Stay Lasts

How the Stay Affects Common Collection Actions

How the Stay Affects Actions Against Codebtors

When the Stay Doesn’t Apply

Evictions

3Are You Eligible to Use Chapter 13?

The Effect of a Previous Bankruptcy Discharge

Business Entities in Chapter 13

Chapter 13 Debt Limits

Providing Income Tax Returns

Child Support and Alimony Payment Requirements

Annual Income and Expense Reports

Drafting a Repayment Plan

Paying to Keep Nonexempt Property

You Must Take Two Educational Courses

4Do You Have to Use Chapter 13?

What Is the Means Test?

The Means Test

Classifying Your Debts

Forced Conversion to Chapter 13

5Can You Propose a Plan the Judge Will Approve?

Repayment Plan Calculations: An Overview

If Your Current Monthly Income Is Less Than Your State’s Median Income

If Your Current Monthly Income Is More Than Your State’s Median Income

Understanding Property Exemptions

6Making the Decision

Part II: Filing for Chapter 13 Bankruptcy

7Complete Your Bankruptcy Forms

Required Forms, Fees, and Where to File

For Married Filers

Voluntary Petition for Individuals Filing for Bankruptcy (Form 101)

Forms Relating to Eviction Judgments (Forms 101A and 101B)

Schedules (Forms 106A/B-J)

Summary of Your Assets and Liabilities and Certain Statistical Information (Form 106Sum)

Declaration About an Individual Debtor’s Schedules (Form 106Dec)

Your Statement of Financial Affairs for Individuals Filing for Bankruptcy (Form 107)

Your Statement About Your Social Security Numbers (Form 121)

Chapter 13 Statement of Your Current Monthly Income and Calculation of Commitment Period and Chapter 13 Calculation of Your Disposable Income (Forms 122C-1 and 122C-2)

Disclosure of Compensation of Attorney for Debtor (Form 2030)

Mailing Matrix

Income Deduction Order

8The Chapter 13 Plan

National Chapter 13 Plan (Form 113)

Chapter 13 Plan Requirements

Repayment of Unsecured Debts: Allowed Claims

Drafting Your Plan

Sample Plan

9Filing the Bankruptcy Case

Other Documents You’ll File

Paying the Filing Fee

Electronic Filing

Emergency Filing

After You File

10Handling Routine Matters After You File

The Automatic Stay

Dealing With the Trustee

Make Your First Payment

If You Operate a Business

The Meeting of Creditors

Changing Your Plan Before the Confirmation Hearing

The Confirmation Hearing

Changing Your Plan After a Failed Confirmation Hearing

Amending Your Bankruptcy Forms

Filing a Change of Address

Filing Tax Returns

Filing Annual Income and Expense Statements

Personal Financial Management Counseling

Chapter 13 Debtor’s Certifications Regarding Domestic Support Obligations and Section 522(q) (Form 2830)

Part III: Making Your Plan Work

11Common Legal Issues

Filing Motions

Dealing With Creditors’ Motions

If an Unsecured Creditor Objects to Your Plan

Handling Creditor Claims

Asking the Court to Eliminate Liens

12Carrying Out Your Plan

Your Income Increases

Selling Property

Modifying Your Plan When Problems Come Up

Attempts to Revoke Your Confirmation

When You Complete Your Plan

13If You Can’t Complete Your Plan

Dismiss Your Case

Convert Your Case to Chapter 7 Bankruptcy

Seek a Hardship Discharge

14Life After Bankruptcy

Rebuilding Your Credit

Attempts to Collect Discharged Debts

Postbankruptcy Discrimination

Attempts to Revoke Your Discharge

Part IV: Help Beyond the Book

15Hiring and Working With a Lawyer

What Does Legal Representation Mean?

How to Find a Bankruptcy Lawyer

What to Look for in a Lawyer

Paying Your Lawyer

Working With Your Lawyer

16Legal Research

Where to Find Bankruptcy Law

Bankruptcy Background Materials: Overviews, Encyclopedias, and Treatises

Finding Federal Bankruptcy Statutes

Finding the Federal Rules of Bankruptcy Procedure (FRBP)

Finding Local Court Rules

Finding Federal Court Bankruptcy Cases

State Statutes

State Court Cases

Other Helpful Resources

Glossary

Appendix

How to Use the Downloadable Forms on the Nolo Website

List of Forms Available on the Nolo Website

Index

PART

I

Is Chapter 13 Right for You?

CHAPTER

1

How Chapter 13 Works

An Overview of Chapter 13 Bankruptcy

Do You Need a Lawyer?

Filing Your Papers

Costs

The Repayment Plan

The Automatic Stay

The Meeting of Creditors

Plan Objections

The Confirmation Hearing

Possible Additional Court Appearances

Making Your Payments Under the Plan

If Something Goes Wrong

Personal Financial Management Counseling

After You Complete Your Plan

Debts Discharged in Chapter 13 Bankruptcy

Debts You Can Discharge

Debts You Can’t Discharge

Debts You Can’t Discharge If the Creditor Successfully Objects

Chapter 13 Bankruptcy and Foreclosure

The Automatic Stay Can Stop a Foreclosure

Catching Up on Mortgage Arrears Through Your Chapter 13 Plan

Getting Rid of Second Mortgages, HELOCs, and Other Junior Liens

Foreclosure Mediation Programs in Bankruptcy

Deficiency Balances Are Discharged in Bankruptcy

Special Chapter 13 Features: Cramdowns and Lien Stripping

Cramdowns: Reducing Secured Loans to the Value of the Collateral

Lien Stripping: Getting Rid of Second Mortgages and Other Liens on Real Estate

Is Chapter 13 Right for You?

Upper-Income Filers Must Use Chapter 13

Reasons to Choose Chapter 7

Reasons to Choose Chapter 13

Alternatives to Bankruptcy

Do Nothing

Negotiate With Your Creditors

Chances are good that you’ve picked up this book because your debts have become overwhelming. Maybe you’re facing foreclosure on your home or repossession of your car. Or perhaps you’re a high-income earner whose debts have grown beyond your ability to repay them. If so, Chapter 13 can help.

If you’re like many, you might prefer to file for Chapter 7 bankruptcy—the chapter individuals file most frequently. Not only is Chapter 7 over in a matter of months, but filers don’t repay creditors in a repayment plan.

But, not everyone qualifies for Chapter 7. And Chapter 13 offers benefits that Chapter 7 doesn’t—some of which are so helpful that people who qualify for Chapter 7 sometimes choose Chapter 13 instead.

For instance, Chapter 13 allows a debtor to repay obligations over time, and often at a discount. Many filers use the Chapter 13 repayment plan to catch up on back payments so that they can keep a house, car, or other property that they’d lose otherwise. Others use it to pay off debts that aren’t wiped out in bankruptcy, such as back taxes or child support arrearages. These problems can’t be solved using Chapter 7.

If you want to know more about how Chapter 13 works and what it can do for you, this is the book. It stops short of giving you all the forms and instructions you would need to do your own Chapter 13 bankruptcy, however. The reality is that very few people can carry out this task without attorney representation. (See Do You Need a Lawyer? below.)

That said, times are changing, and filing for bankruptcy is getting easier—primarily because the forms are now simpler to use. Even so, the forms don’t explain bankruptcy law or procedure. If you file on your own, you’re responsible for learning the process and understanding how a filing would affect your income and assets.

But we’re jumping ahead. Before deciding whether Chapter 13 is right for you, there’s a lot to know.

This first chapter gets you started by providing an overview of all aspects of Chapter 13 bankruptcy, as well as options for dealing with your debts outside of bankruptcy. It’s intended to give you a taste of what filing Chapter 13 involves and its benefits.

As you go through it, don’t expect to grasp everything right away—it’s a complicated area of law, so naturally, getting the hang of it involves a learning curve.

Plus, help is always at your fingertips. Each topic discussed in the first chapter is covered in more detail in the following chapters (we tell you where). If you’re having difficulty grasping a concept but want to learn more, feel free to skip ahead.

Online Companion Page: Get Legal Updates and More at Nolo.com

You can find critical legal updates on this book’s online companion page at: www.nolo.com/back-of-book/CHB.html

An Overview of Chapter 13 Bankruptcy

Typically, a Chapter 13 filer has a good income and can afford to repay some amount to creditors, but perhaps not the entire balance owed. Other debtors just need time to catch up on bills they can’t erase in bankruptcy without the threat of a collection lawsuit or wage garnishment looming over the debtor’s head.

The ability to force a creditor into a Chapter 13 payment plan is quite powerful. Unlike a quick Chapter 7 case, a Chapter 13 filer can restructure bills over three to five years, and in some cases, even pay less than what’s owed.

Chapter 13 filers also keep all of their property regardless of its value (although this comes at a price—more about this later). In Chapter 7, filers are entitled to things necessary to work and live only, such as a modest car, some equity in a home, household furnishings, and a retirement account. All other property gets sold for the benefit of creditors.

Chapter 13 has other valuable benefits, too (discussed below in Reasons to Choose Chapter 13), but, as mentioned above, the most powerful is that it can help you save your home. Chapter 13 bankruptcy allows you to catch up on mortgage payments through your plan and avoid foreclosure. (See Ch. 8.) And you can eliminate a junior mortgage (a loan in second position or later) that isn’t secured by the equity in your property—something that can occur when your home’s value has decreased and it’s significantly underwater.

Do You Need a Lawyer?

For the vast majority of Chapter 13 filers, the answer is yes. Even bankruptcy courts strongly suggest that filers retain counsel.

It’s not that people can’t understand how Chapter 13 bankruptcy works or fill out the petition and accompanying schedules and forms. The problem is that Chapter 13 law can be tricky. The difficult part is understanding what will happen to assets, how much to repay creditors, and other complicated Chapter 13 repayment plan requirements. Calculating plan payments is complicated without the assistance of computer software, which is expensive and generally requires bankruptcy knowledge to complete correctly. It is also not uncommon for the trustee—the official responsible for overseeing your case—or creditors to challenge or object to various aspects of your plan. You might have to argue against objections, negotiate with creditors, or modify your plan. Most Chapter 13 plans need at least one modification before receiving court approval, even when prepared by an attorney.

Experienced Chapter 13 bankruptcy lawyers have software to prepare your Chapter 13 plan and the expertise to handle objections and to modify your plan as needed.

Overall, we believe that most Chapter 13 filers benefit from legal representation. However, it’s still important to understand the Chapter 13 process, including options for dealing with debts and property, the possibility of reducing loan amounts (called a cramdown), and what you can expect to pay in your Chapter 13 plan. This book also helps you identify various tricky issues that might arise in your bankruptcy case. Armed with this knowledge, you’ll be in a better position to help your attorney represent you.

It’s also helpful to run some preliminary numbers yourself to determine if Chapter 7 is an option for you. You can also identify whether one of the mechanisms exclusive to Chapter 13 will help improve your financial situation, and if so, whether you have enough income to fund a Chapter 13 plan. Chs. 4 and 5 take you through the means test (to see if you qualify for Chapter 7 bankruptcy) and provide step-by-step instructions on figuring out if you can fund a Chapter 13 plan.

To learn more about hiring and working with a bankruptcy lawyer, see Ch. 15.

Filing Your Papers

To begin a Chapter 13 bankruptcy, you disclose all aspects of your financial situation on the bankruptcy forms provided by the bankruptcy court. You’ll list your income, property, debts, and your financial transactions for the years immediately before your filing.

You’ll also complete two forms to see whether your income is more or less than the median income in your state. The calculation determines how long your repayment plan must last. If your income is more than the state median, your plan must last five years with a few exceptions. If your income is less than the median, you can propose a three-year plan.

Finally, you’ll prepare a Chapter 13 repayment plan for court approval. Your plan shows how you propose to pay certain mandatory obligations (child support, tax arrearages, and so on) and secured debts (debts guaranteed with collateral) on any property you intend to keep. If you have sufficient disposable income, you’ll also pay at least a portion of your other unsecured debts over the three- to five-year period. (See Ch. 8.) Other things you’ll need to do will include:

filing a certificate showing you participated in a credit counseling program during the 180 days before filing (as explained in Ch. 9)

completing a debtor education course before making your final plan payment, and

completing a certificate regarding child support obligations and your residence (not all filers have to do this).

All filers must submit financial documents verifying the figures in the bankruptcy paperwork. You’ll file them with the court or provide them to the trustee, depending on the rules of your local jurisdiction.

Such documents can include:

pay stubs from the 60 days before you file, along with a cover sheet

proof that you’ve filed your federal and state income tax returns for the previous four years

a copy of your most recent IRS income tax return (or a transcript of that return), and

if you’re a business owner, profit and loss statements (business owners can file for Chapter 13, but not the business itself).

Chs. 7 through 9 discuss in detail the bankruptcy forms, repayment plan, and filing process.

Costs

Everyone who files for Chapter 13 must pay the filing fee of $313. You’ll also pay about $60 to a credit counseling agency for prefiling credit counseling and postfiling debt management counseling.

If you decide to hire a lawyer to help you with your case, you can expect to pay an additional $3,000 or more in legal fees, depending on the prevailing rate in your area. In most cases, you won’t have to pay the entire legal fee all at once. Many attorneys will ask you to make an initial payment—which could be as low as $100 but likely more—and allow you to pay the rest through your plan.

The Repayment Plan

You’ll submit the repayment plan with your other bankruptcy papers or shortly after your initial filing. The plan shows your creditors, the trustee, and the judge that you have enough income to pay mandatory amounts (priority debts and secured debts if you want to keep the collateral). It also explains how much disposable income remains to pay nonpriority unsecured debts—for instance, credit card balances, medical bills, and personal loans.

Debts You Must Repay

Chapter 13 requires you to pay particular, high-priority debts in full through the plan, including recent income tax debt, domestic support obligations, and mortgage and car loan arrearages if you want to keep a car or home.

But that’s not all. You’ll have to show that you can keep up on your other obligations, too, such as a mortgage or car note and other monthly living expenses. The amount left, which is known as your disposable income, will be used toward your remaining debts.

But you’ll need to overcome another hurdle. As explained further in Ch. 3, your plan must pay your unsecured creditors—credit cards, medical bills, personal loans, and the like—at least as much as you would have paid if you’d filed for Chapter 7 instead. Here’s a simple way to think of it: The amount you pay to unsecured creditors in Chapter 13 must meet or exceed the value of the property you’d have given up in Chapter 7. This formula ensures that your creditors aren’t unfairly prejudiced by the fact that you can keep property in Chapter 13 that you would lose in Chapter 7.

To determine this amount, calculate the value of all property you can’t protect with a bankruptcy exemption. Then subtract the costs, commissions, and fees necessary to sell the property, including the trustee’s fee, which can be substantial. The final figure is the minimum amount you’d have to pay your unsecured creditors.

If you have enough disposable income to pay more, you’ll pay it toward the unsecured debt, up to 100% of your debt balance. You don’t have to pay more than you owe.

TIP

Why would someone pay 100% of what they owe in Chapter 13? It often happens when someone with a significant amount of disposable income uses Chapter 13 to pay off nondischargeable debts, like taxes or support obligations. If their disposable income covers 100% of their debts, they must fully repay every debt they owe if they want to use Chapter 13 to stop creditor collections during the repayment period.

It can also happen when someone has a lot of equity they can’t protect with a bankruptcy exemption in a property they’d like to keep. For instance, suppose a filer who owns a house with $200,000 equity, $100,000 of which is nonexempt (isn’t protected), has a credit card creditor with a $50,000 money judgment threatening to seize the house. What should the filer do to prevent losing the home?

Filing for Chapter 7 wouldn’t help because the trustee could sell the house and use the nonexempt sales proceeds to pay the creditor in full.

Chapter 13 would be a better solution because a Chapter 13 trustee doesn’t sell property; however, under the rules, the filer must pay unsecured creditors as much as Chapter 7 unsecured creditors would receive. Because the creditor would be fully paid the $50,000 owed in Chapter 7, our filer would need to pay $50,000, or 100% of the filer’s unsecured debt.

Even though the filer wouldn’t get a discount on the debt, there’s still a benefit to filing for Chapter 13. A filer with sufficient income can spread the payments over five years. In essence, by filing for Chapter 13, our filer can force the credit card creditor to accept a five-year payment plan and keep the house.

Repayment Period Length

You must propose a three- or five-year repayment plan depending on your income. As you’ll learn in Ch. 4, a filer whose gross monthly income averaged over the six months before filing is more than the median income in their state must propose a five-year repayment plan (unless the plan pays 100% of the filer’s unsecured debt). For more plan length information, see Ch 5.

Filers whose average gross monthly income for the six months before filing is less than the state median can choose between Chapters 7 and 13. If they use Chapter 13, these filers can propose a three-year repayment plan and use their actual expenses to calculate how much they’ll devote to the plan. Such filers sometimes opt to pay a smaller payment over five years to increase their chances of getting their plan approved by the court.

To learn more about how to calculate your income, find out whether your income is above or below your state’s median, and figure out which expenses to use in calculating your plan payments, see Ch. 4.

Coming Up With a Plan the Judge Will Approve

You can’t proceed with a Chapter 13 bankruptcy unless a bankruptcy judge approves (confirms) your plan. You’ll have to propose a plan that meets all requirements and prove that you have enough income to fund it.

However, some judges will confirm a zero-percent plan that doesn’t repay any portion of credit card balances or other nonpriority unsecured debts. Filers use it if they don’t have any disposable income left after paying child support arrearages and other required obligations. It’s an excellent benefit if you have large nondischargeable debts because it offers the best of both Chapter 7 and 13. You can get a complete discharge of qualifying debt along with time to pay off a nondischargeable tax bill or domestic support obligation without worrying about a potential wage garnishment.

TIP

You might have more—or less—disposable income than you think. Chapter 13 requires you to commit your projected disposable income to repaying your debts over the life of your plan. Initially, you calculate your projected disposable income by subtracting your allowable expenses from your average income during the six months before you file for bankruptcy. But if this doesn’t give an accurate picture of your current income and expenses and given certain circumstances, you might be able to use your current income and expenses at the time you file, if those figures more accurately reflect your finances going forward. For more information on calculating your disposable income, see Ch. 5.

The Automatic Stay

When you file for Chapter 13 bankruptcy, the automatic stay goes into effect right away. The stay prevents most creditors from taking action to collect a debt against you or your property. For instance, if you’re facing a home foreclosure or a vehicle repossession, the stay will stop the proceeding in its tracks. However, the automatic stay will be limited if the court recently dismissed a bankruptcy case and won’t apply if the court dismissed two recent bankruptcies. You’ll find more automatic stay details in Ch. 2.

The Meeting of Creditors

As soon as you file your bankruptcy papers, the court will send out a notice of a meeting of creditors or 341 hearing that will take place within 20 to 40 days after your filing date. If you and your spouse filed jointly, you’ll both attend. You’ll each need to bring two forms of identification—a picture ID and proof of your Social Security number.

The Chapter 13 bankruptcy trustee conducts the creditors’ meeting in a conference room, not a courtroom. No judge will be present, but filers must cooperate with the trustee.

Keep in mind that if your meeting is held in a federal building, there might be restrictions on what you can bring with you. Check beforehand.

A typical creditors’ meeting lasts less than 15 minutes. The trustee will ask any questions raised by the information entered in the forms. The trustee will be interested in the legality of your proposed repayment plan and your ability to make the payments. (See Ch. 8 for more on Chapter 13 plans.) The trustee has a vested interest in your plan’s approval because the trustee gets paid a percentage of all payments your creditors receive.

The trustee will also require proof that you’ve filed your tax returns for the previous four years. The trustee might continue the meeting to give you a chance to file them if needed. Ultimately, you won’t be able to proceed unless your tax filings are up to date.

RESOURCE

Help if you’re behind in tax payments. Many people who owe taxes benefit from professional help in the form of a tax attorney, an enrolled agent (licensed by the IRS), or a tax preparer. For more information on getting current on taxes and getting professional help, read Stand Up to the IRS, by Frederick W. Daily and Stephen Fishman (Nolo).

When the trustee finishes asking questions, any creditors who’ve appeared will have a chance to question you. It’s unlikely that a creditor will show, but if one does, you’ll be required to answer questions related to your past and present financial circumstances.

Disgruntled creditors or those suspecting fraud might come to gather evidence to support their case, much like litigants do in a deposition. They’ll likely evaluate whether to proceed after the hearing. If they do, expect your answers to be used against you.

By contrast, filers often learn whether the trustee has an objection to the plan. You might be able to modify it to accommodate the trustee. If you can’t resolve the issue, the trustee or creditor will object in writing in a formal motion, and a bankruptcy judge will decide the matter at the plan confirmation hearing (more below).

Plan Objections

A creditor who has an objection to the proposed plan is unlikely to voice that objection at the meeting of creditors. Instead, the creditor will file a motion with the court. The trustee will also file a motion if you can’t resolve a problem informally.

For instance, a trustee or creditor might claim your plan isn’t feasible if you don’t have enough income to make the required plan payment.

But that isn’t the only objection you might face. Creditors often claim they’re legally entitled to more money, or that you could pay more if you decreased overly luxurious living expenses.

The trustee will often weigh in on a creditor’s position, and, as a general rule, the judge will go along with the trustee unless your lawyer can point out an error.

The Confirmation Hearing

Chapter 13 bankruptcy requires at least one appearance by you or your attorney before a bankruptcy judge. (In some districts, the judge comes into the courtroom only if the trustee or a creditor objects to your plan and you want the judge to rule on the objection.) At this confirmation hearing, which is usually held a few weeks after the creditors’ meeting, the judge either confirms (approves of) your proposed plan or sends you back to the drawing board for various reasons—usually because your plan doesn’t meet Chapter 13 requirements. For example, a judge might reject your plan because you don’t have enough income to pay off your priority creditors in full while staying current on your secured debts, such as a car note or mortgage.

You’re entitled to amend your proposed plan until you get it right or the judge decides that it’s hopeless. During this time, though, you must make payments to the trustee under your proposed plan. Each amendment requires a new confirmation hearing and appropriate written notice to your creditors. (For more information on the confirmation hearing, see Ch. 10.) Once your plan is confirmed, it will govern your payments for the three- to five-year repayment period.

Possible Additional Court Appearances

If your plan is prepared perfectly from the beginning, your confirmation hearing will probably be the only time the bankruptcy judge deals with your case. However, additional court appearances by you or your attorney might be necessary to:

confirm your repayment plan if you need to modify or change your plan

value an asset, if your plan proposes to pay less for a car or other property and the creditor objects to the valuation

respond to requests by a creditor or the trustee to