What is the Process of Chapter 13 Bankruptcy?

What You Need to Know About the Process of Chapter 13 Bankruptcy

The process of Chapter 13 is similar to Chapter 7. However, there are some significant differences in the process. Specifically, Chapter 13 takes longer than Chapter 7, has an additional hearing, and requires payments to the trustee during the process before a discharge can be obtained. To learn more about the benefits of Chapter 13, click here. To learn how to qualify for Chapter 13, click here.

The major steps of a typical Chapter 13 are laid out below. Remember that there are more steps and issues to cover than are listed here. This is just to give you some familiarity with the process.

Step 1. Credit Counseling

Before a debtor may file a bankruptcy case with the court; the law requires that the debtor complete a credit counseling course. This course can be completed either online or at a credit counseling location. The debtor must use an approved provider for the course and obtain a certificate of completion. This certificate must be filed with the court when the petition is filed. There are situations where the course may be completed after filing, but do not depend on the court thinking your situation qualifies.

Step 2. Data Collection

The next step is to get all of the information needed to file the case. You will need to find out what your gross income for the last 6 months was from all sources including unemployment, retirement, spousal support, child support, employment, business income, etc. You will also need to identify all debts and the account numbers and addresses for each creditor. All debts must be included, no matter whether you want to file bankruptcy against that creditor or not. Then you will need to list all of your assets such as real estate, cars, boats, motorcycles, collectibles, brokerage accounts, retirement accounts, cash-value insurance, etc. The idea is to find out how much you made, how much you owe, and how much you own.

Step 3. Paperwork Collection

In every case filed, a trustee is assigned to each case that will review all of the paperwork filed in the case. The trustee will also require additional documents that are not filed with the bankruptcy court, such as tax returns, bank statements, retirement statements, insurance policies and other documents. You will need to find your Social Security card or obtain a printout from the Social Security department so that you will have it for the trustee hearing described below. Your attorney will advise you of what documents you are going to need for the trustee.

Step 4. Preparing the Bankruptcy Petition

Once you have collected all of your financial data and the required documents, it is time to get to work. Your attorney will take your information and after performing an extensive evaluation and review of your situation, will begin the process of preparing your bankruptcy petition, the attending schedules, and other required documents. Once the bankruptcy paperwork is completed, you will then sit down with your attorney and review the paperwork for errors, omissions and to make any correction necessary. Once the paperwork is correct, you will sign the documents and your attorney will then file the case with the bankruptcy court.

Step 5. The "Plan"

Each Chapter 13 requires the debtor to make monthly payments to the trustee over the length of the Chapter 13. The debtor must prepare a "Plan" detailing which creditors are to be paid and how much the creditor will be paid. These payments are made to the trustee for either 3 or 5 years. The amount of the payments depends on the amount of income the debtor has and on the debts the debtor is paying. For example, if the debtor is trying to save a home from foreclosure, the payments to the trustee will include the amount of past-due mortgage payments needed to become current on the loan by the end of the Chapter 13. Other considerations will include debts like car loans, taxes, and spousal and child support debts.

Step 6. The Trustee Hearing

About 45 days after your case is filed, you will be required to attend a Trustee's Hearing, also called a "341 Hearing." Before this hearing takes place, you should have completed your second credit counseling course and forwarded a certificate of completion to your attorney for filing with the court. At this hearing, two things will happen: 1) the trustee will question you about your paperwork to make sure there are no errors, omissions, or changes that are not reflected in the paperwork, and; 2) any creditor that wishes to ask you about your assets will be allowed to ask you questions. The hearing normally takes just a little while. If the trustee needs some additional information, the trustee will reschedule the hearing so that the new information can be provided to the trustee. Once the trustee is satisfied, the trustee will conclude the hearing. Most people are understandably nervous during the hearing, but once it is over, the most common question the debtor asks is "that it?"

Step 7. Plan Confirmation Hearing

The court must approve the debtor's "Plan" and this is done at a hearing before the judge assigned to your case. This is the most difficult part of the Chapter 13 because creditors and the trustee assigned to the case can object to the plan. If they object, the attorney will negotiate with creditors and the trustee and make changes to the plan so that there are no objections. If the attorney cannot, or refuses to, make changes requested by creditors or the trustee, the judge will make a ruling on the sufficiency of the plan. If the judge agrees with the plan, then the plan is affirmed over any objections. If the judge agrees with the objections, then the debtor's attorney must make the changes as directed by the judge.

If You Have More Questions

Please contact us if you have more questions or are ready to move forward and start the process of becoming debt-free. Remember, we are here to help you resolve your debt problems, so call us now!

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