THE FOLLOWING INFORMATION APPLIES TO THE NORTHERN AND EASTERN DISTRICTS OF TEXAS ONLY:
SPECIFICALLY THE DALLAS AND SHERMAN (PLANO) DIVISIONS.
What Is Chapter 13 Bankruptcy?
Chapter 13 is a provision of the Bankruptcy Code that allows an individual (not a corporation or partnership) to restructure his or her debts. It allows you to pay all or part of its debts over time. This chapter is available to an individual with a “regular” income. You must owe debts totaling less than $394,725 unsecured and $1,184,200 secured. A secured creditor has collateral, such as a house or car that it can repossess if the debt is not paid. If a creditor has a guarantor it has someone that it can sue if you do not pay. A guaranteed debt is not secured unless there is also collateral involved.
Under Chapter 13, you propose a Plan by which you will make monthly payments to a Standing Chapter 13 Trustee. The Trustee will then distribute the funds to the creditors according to the Plan. The Trustee will receive a “commission” of up to ten percent (10%) of the payments to creditors. Under the Plan, you may not have to pay all the creditors in full. But, you must propose the Plan in “good faith.” Also, the creditors must receive at least as much as they would receive if the you had liquidated in Chapter 7. In addition, the Court cannot confirm the plan unless you are paying all your “projected disposable income” to the plan.
Once you have completed all your payments under the Plan, you should receive a discharge. This means that a creditor that you owed money at the beginning of the case cannot pursue you for the balance of the claim. This may be so even if the creditor did not get paid under the Plan.
Certain debts may not dischargeable and you should be aware of these. These debts include:
- Any creditor who was not properly scheduled or did not get notice of the bankruptcy;
- Student loans;
- Injuries caused while driving while intoxicated;
- Most child support and alimony payments;
- Certain taxes; and
- Debts to a creditor who can prove that you defrauded it in obtaining credit or an extension of credit.
Procedures and Hearings: The first step in the filing of a Chapter 13 proceeding is the preparation and filing of the Petition and list of creditors, complete with names, addresses and account numbers. At the time of this filing, there is a fee of $310.00 to the Clerk of the Bankruptcy Court. Also, within six (6) months before to the filing of the case, you must take a Credit Counseling Course. Your attorney can supply you with a list of approved courses or you can go to the United States Trustee’s website to find a list.
Very shortly after the filing of the Petition, you must file the remainder of the Chapter 13 Documents. It is very important that the Documents are complete with respect to all creditors and assets.
If you do not file the Chapter 13 Documents within fourteen (14) days after filing the case, the court may dismiss the case. In addition, the Court may prohibit you from filing another case for up to 180 days.
Once the petition is filed, the court will notify all the listed creditors of the bankruptcy. It will notify them of the dates and times of the Creditors’ Meeting. After the filing of the petition, creditors should no longer contact you concerning repayment. If a creditor contacts you, give the creditor your bankruptcy number and advise the creditor that you have filed Bankruptcy.
In about 30 to 60 days after the filing of the petition, there will be a creditors’ meeting. It is called a “341 Meeting” since it is required under Section 341 of the Bankruptcy Code. You will receive written notice of the date and time of the meeting. In Dallas, all meetings begin at 8:30; in Plano, they are assigned set times. Make sure to read your notice carefully and mark your calendar. Generally no creditors will attend but you must meet with a representative of the Chapter 13 Trustee’s office and discuss your finances. The questions will usually center around the proposed budget. If you fail to attend, the Trustee will file a Motion to Dismiss your case.
Prior to receiving your discharge (which is only granted after the completion of your payments), you must attend a financial management course. The Chapter 13 Trustee generally offers the course for free if you take it the same day as your 341 Meeting. Otherwise, you may obtain a list of approved agencies from your attorney or the United States Trustee’s website. As in the Credit Counseling Course, there will be a fee if given by the private agency.
Within 20 to 45 days of the 341 Meeting, there will be a Confirmation Hearing. You may or may not need to attend this hearing. Contact your attorney about one week prior to the hearing to see if you need to be there.
Further, after the deadline for all claims to be filed, the Chapter 13 Trustee will file its Trustee’s Recommendation Concerning Claims (“TRCC”). If you disagree with the TRCC, you may be required to attend a hearing. Keep in touch with your attorney on this matter.
Within 30 days of the filing of the case, you must begin to make payments. The payments are to be sent to:
- DALLAS (45 days) Thomas Powers, Standing Chapter 13 Trustee PO Box 1958 Memphis, TN 38101-1958
- PLANO (30 days) Carey D. Ebert, Standing Chapter 13 Trustee PO Box 628 Tyler, TX 75710
If, at any time before completion of the payments under the plan, you find that you cannot make the payments, immediately contact your attorney. The Chapter 13 Trustee will track your payments by computer. If you get behind, the Trustee may file a motion to dismiss the case. If the case is dismissed, the you may lose some or all payments made. Also, you may still owe your creditors just as if you had not filed bankruptcy.
What Are Other Chapters?
There are three other chapters of the bankruptcy code that may be of interest. They are Chapters 7, 11 and 12.
Chapter 7 is most commonly used and most commonly thought of chapter of the Bankruptcy Code. It is usually a liquidation of your non-exempt assets and a discharge of your liabilities. There are no provisions to cure defaults by making periodic payments under Chapter 7. A base fee for Chapter 7, is usually about 2/3 of a Chapter 13 base fee since the work is less.
Usually, Chapter 11 is for corporations and larger business. It is a proceeding in which you reorganize your business affairs and restructure your debts. It is often a very expensive procedure with initial court costs of $1,717 and attorneys fees usually exceeding $25,000.
Chapter 12 is a provision of the bankruptcy code designed for family farmers. To qualify, one must be a “family farmer” with a regular annual income. A farmer is a person who receives more than 80% of his or her gross income from farming operations. Understandably, the use of this chapter is rare in Dallas.
Chapter 13 has certain advantages over Chapter 7
First, you may owe past due sums on secured property such as a house or car. Under Chapter 13, you can catch up over a period up to five (5) years.
Second, it may be easier to operate a business under Chapter 13. Under Chapter 7, the Trustee may liquidate the business. Under Chapter 13, you may be able to operate your business.
Even under Chapter 13, there are some debts that you must continue to pay. If you owe money to a creditor who has a lien on property (such as a car loan or a mortgage on a home), that creditor must continue to be paid. If not, it may recover its collateral. Therefore, you must continue to make the payments on his house and cars if you wish to keep them. Also there are certain types of consumer purchases where you may have bought an item (for example, an appliance). The agreement may give the retailer a lien. In such cases, it may be necessary to continue the payments or surrender the items. As an alternative, you may be able to redeem the item. That is, pay the creditor the value of the item instead of the actual debt you owe.
Call Lusky & Associates, P.C. for a FREE CONSULTATION (972) 386-3900.