Law Offices of Christopher C. Carr, MBA. P.C., is a quality Chester County Bankruptcy Law Practice located in Valley Township, west of Coatesville, Pennsylvania, where Attorney Carr concentrates his practice on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities of Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downington, Eagle, East Fallowfield, Exton, Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester, Pennsylvania.
This is a Federally Designated Debt Relief Agency which is proud to assist individuals in need in filing for bankruptcy protection.
Financial Fears Keeping You up Nights…Got Questions about Bankruptcy?
Are are your credit cards maxxed out, do you fear a foreclosure or repossession? Are you thinking about ending that downhill spiral and taking control of your financial difficulties by filing for bankruptcy, if so, you probably have a lot of questions. At the Law Offices of Christopher C. Carr, MBA. P.C., we can provide answers to those questions. For commonly asked questions, please see below:
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Frequently Asked Questions about Chapter 13 Bankruptcy and the Difference between a Ch. 13 and Ch. 7 Bankruptcy:
1. What is Chapter 13 and how does it work?
Chapter 13 is the chapter of the Bankruptcy Code under which a person (a “Debtor”) may keep with exceptions all of his or her property and repay all or a portion of his or her debts under the supervision and protection of the bankruptcy court. The Bankruptcy Code is the portion of the federal laws that deal with bankruptcy. In a Chapter 13 case, the debtor must submit to the court a plan for the repayment of all or a portion of his or her debts. The plan must be approved (or “confirmed”) by the court to become effective. If the court approves the debtor’s plan, most creditors will be prohibited from collecting their claims from the debtor during the course of the case. The debtor must make regular payments to a person called the Chapter 13 trustee, who collects the money paid by the debtor and disburses it to creditors in the manner called for in the plan. Upon completion of the payments called for in the plan, the debtor is released from liability for the remainder of his or her dischargeable debts.
2. How does Chapter 13 differ from Chapter 7 for a debtor?
Under Chapter 7, the debtor’s nonexempt property (if any exists) is liquidated to pay as much as possible of the debtor’s debts. In most Chapter 13 cases, a portion of the debtor’s future income is used to pay as much of the debts as is feasible considering the debtor’s circumstances. As a practical matter, under Chapter 7, the debtor loses all or most of his or her nonexempt property and receives a Chapter 7 discharge, which releases the debtor from liability for all but certain types of debts Under Chapter 13, the debtor usually retains his or her nonexempt property and must pay off as much of his or her debts as the court deems feasible. The debtor then receives a Chapter 13 discharge, which is broader than a Chapter 7 discharge and releases the debtor from liability for several types of debts that are not dischargeable under Chapter 7 (See # 6 below).. However, a Chapter 13 case normally lasts much longer than a Chapter 7 case and is usually more expensive for the debtor because a portion of the debt will be paid as versus a Chapter 7 where all debt typically is discharged..
3. When is Chapter 13 preferable to Chapter 7 for a debtor?
Chapter 13 is usually preferable for a person who has valuable nonexempt property or has valuable exempt property securing debts, either of which would be lost in a chapter 7 case; wishes to repay in part all or most of his or her unsecured debts and has the income with which to do so within a reasonable time; is not eligible for a discharge under Chapter 7; has one or more substantial debts that are dischargeable under Chapter 13 but not under Chapter 7; or has sufficient assets with which to repay most debts but needs temporary relief from creditors in order to do so.
4. How does Chapter 13 differ from a private debt consolidation service?
In a Chapter 13 case, the bankruptcy court can provide aid to the debtor that private debt consolidation services cannot provide. For example, the court has the authority to prohibit creditors from attaching or foreclosing on the debtor’s property, to force unsecured creditors to accept a Chapter 13 plan that pays only a portion of their claims and to discharge a debtor from unpaid portions of debts. Private debt consolidation services have none of these powers.
5. How does Chapter 13 differ from a private debt settlement service?
In a Chapter 13 case, the bankruptcy court can provide aid to the debtor that private debt settlement services cannot provide. For example, the court has the authority to prohibit creditors from attaching or foreclosing on the debtor’s property, to force unsecured creditors to accept a Chapter 13 plan that pays only a portion of their claims and to discharge a debtor from unpaid portions of debts. Private debt settlement services have none of these powers. In addition, due to commissions and typically acceptable settlement ratios in the industry, a Chapter 13 case will usually be much more economical than debt settlement. Persons who contract for a debt settlement program are often forced to abandon it and enter bankruptcy because one or more creditors assert foreclosure or debt related lawsuits.
6. What is a Chapter 13 discharge?
A Chapter 13 discharge is a court order releasing a debtor from all dischargeable debts and ordering creditors not to attempt to collect these debts from the debtor by any means. A debt that is discharged is one that the debtor is released from and does not have to pay. The order does not apply to debts which were not listed in the bankruptcy petition and subsequently discharged nor to debts that are non dischargeable by law. There are two types of Chapter 13 discharges: a full or successful plan discharge, which is granted to a debtor who completes all payments called for in the plan, and a partial or unsuccessful plan discharge, which is granted to a debtor who is unable to complete the payments called for in the plan due to circumstances for which the debtor should not be held accountable. A full Chapter 13 discharge is broader and discharges more debts than a Chapter 7 discharge, while a partial Chapter 13 discharge is similar to a Chapter 7 discharge.
7. What types of debts are dischargeable under Chapter 13?
A full Chapter 13 discharge granted upon the completion of all payments required in the plan discharges a debtor from all debts except:
- Secured debts (i.e., debts secured by mortgages or liens) to the extent of payments due after the completion of the plan
- Debts that were paid outside of the plan and not covered in the plan
- Debts for court ordered alimony, maintenance or support
- Debts for death or personal injury caused by the debtor’s operation of a motor vehicle while unlawfully intoxicated
- Debts for restitution or criminal fines included in a criminal sentence imposed on the debtor
- Debts for federally guaranteed student loans or educational obligations
- Installment debts with last payment due after the completion of the plan
- Debts incurred while the plan was in effect that were not paid under the plan
- Fraudulently incurred debts
8. What is a Chapter 13 plan?
A Chapter 13 plan is a written plan presented to the bankruptcy court by a debtor that states how much money or other property the debtor will pay to the Chapter 13 trustee, how long the debtor’s payments to the Chapter 13 trustee will continue, how much will be paid to each of the debtor’s creditors, which creditors will be paid outside of the plan and certain other technical matters.
9. What is a Chapter 13 trustee?
A Chapter 13 trustee is a person appointed by the United States trustee to collect payments from the debtor, make payments to creditors in the manner set forth in the debtor’s plan and administer the debtor’s Chapter 13 case until it is closed. It is important to note that the Chapter 13 trustee does not represent the debtor but is charged with representing the interests of the unsecured creditors.
10. What debts may be paid under a Chapter 13 plan?
Any debts whatsoever, whether they are secured or unsecured, may be paid under a Chapter 13 plan. Even debts that are nondischargeable, such as debts for student loans, alimony or child support, may be paid under a Chapter 13 plan.
11. Must all debts be paid in full under a Chapter 13 plan?
No. While priority debts, such as debts for alimony, maintenance and support, debts for taxes and fully secured debts, and first mortgage arrears, if any, must be paid in full under a Chapter 13 plan, only an amount that the debtor can reasonably afford must be paid on most debts. The unpaid balances of most debts that are not paid in full under a Chapter 13 plan are discharged upon completion of the plan.
12. Must all unsecured creditors be treated alike under a Chapter 13 plan?
No. If there is a reasonable basis for doing so, unsecured debts can be divided into separate classes and can be treated differently. It may be possible, therefore, to pay certain unsecured creditors in full while paying little or nothing to others.
13. How much of a debtor’s income must be paid to the trustee under a Chapter 13 plan?
Usually all of the disposable income of the debtor and the debtor’s spouse for a three-year period must be paid to the Chapter 13 trustee. Disposable income is income received by the debtor and his or her spouse that is not reasonably necessary for the support of the debtor and the debtor’s dependents. However, if the debtor earns more than the median income in the state in which he or she resides, the debtor may be required to adopt a five-year plan. This however may actually be advantageous for the debtor who needs more time to retire debt.
14. When must the debtor begin making payments to the Chapter 13 trustee and how must those payments be made?
The debtor must begin making payments to the Chapter 13 trustee within 30 days after the debtor’s case is filed with the court, and the plan must be filed with the court within 15 days after the case is filed. Payments typically must be made by certified check or money order. It is critical to make the first payment timely even though the 341 meeting may not yet have been held as this can be grounds for dismissal.
15. How long does a Chapter 13 plan last?
A Chapter 13 plan must last for at least three years and up to five years, unless all debts can be paid off in full in less time.
16. Is it necessary for all creditors to approve a Chapter 13 plan?
No. To become effective, a Chapter 13 plan must be approved by the court, not by the creditors. The court, however, cannot approve a plan unless secured creditors are dealt with in the manner described in the answer to Question 16 (below). Also, unsecured creditors are permitted to file objections to the debtor’s plan. These objections must be ruled on by the court before it can approve the debtor’s Chapter 13 plan.
17. How are secured creditors dealt with under Chapter 13?
There are four methods of dealing with secured creditors under Chapter 13: the creditor may accept the debtor’s proposed plan, the creditor may retain its lien and be paid the full amount of its secured claim under the plan, the debtor may surrender the collateral to the creditor or the creditor may be paid or dealt with outside the plan.
18. How are claims against the debtor valued under Chapter 13?
It is important to understand that a creditor has a secured claim only to the extent of the value of its security, which cannot exceed the value of the property securing the claim. Thus, a creditor with a lien on, say, a $1,500 automobile cannot have a secured claim for more than $1,500, regardless of how much is owed to the creditor. If the debtor is in default to a secured creditor, the default must be cured (made current) within a reasonable time. Also, interest must be paid on secured claims.
19. How are cosigned or guaranteed debts handled under Chapter 13?
If a cosigned or guaranteed consumer debt is being paid in full under a Chapter 13 plan, the creditor may not collect the debt from the cosigner or guarantor. However, if a consumer debt is not being paid in full under the plan, the creditor may collect the unpaid portion of the debt from the cosigner or guarantor. A consumer debt is a non-business debt. Creditors may collect business debts from cosigners or guarantors even if the debts are to be paid in full under the debtor’s plan.
20. Who is eligible to file under Chapter 13?
Any natural person may file under Chapter 13 if the person resides in, does business in or owns property in the United States; has regular income; has unsecured debts of less than $307,675; has secured debts of less than $922,975; is not a stockbroker or a commodity broker; and has not been a debtor in another bankruptcy case that was dismissed within the last 180 days on certain technical grounds. A person meeting the above requirements may file under Chapter 13 regardless of when he or she last filed a bankruptcy case or received a bankruptcy discharge, however a discharge may not be available in the subsequent bankruptcy. Corporations, partnerships and limited liability companies may not file under Chapter 13.
21. May a husband and wife file jointly under Chapter 13?
A husband and wife may file jointly under Chapter 13 if each of them meets the requirements listed in the answer to Question 18 (above), except that only one of them need have regular income and their combined debts must meet the debt limitations described in the answer to Question 18 (above).
22. When should a husband and wife file jointly under Chapter 13?
If both spouses are liable for any significant debts, they likely should file jointly under Chapter 13 — even if only one of them has income. Also, if both spouses have regular income, they should file jointly. Filing individually is a bar to later filing jointly in the same case and vice versa so the choice must be made carefully.
23. May a self-employed person file under Chapter 13?
Yes. A self-employed person meeting the eligibility requirements listed in the answer to Question 20 (above) may file under Chapter 13. A debtor engaged in business may continue to operate the business during the Chapter 13 case.
24. May a Chapter 7 case be converted to Chapter 13?
A pending Chapter 7 case may be converted to Chapter 13 at the request of the debtor if the case has not been previously converted to Chapter 7 from Chapter 13 and if the debtor is converting the case in good faith. However, unlike a conversion from a chapter 13 to a 7 a conversion to a 7 from a 13 is not a matter of right as a hearing before the court will be required.
25. Where is a Chapter 13 cases filed?
A Chapter 13 case is filed in the bankruptcy court in the district where the debtor has lived or maintained a principal place of business for the greatest portion of the last 180 days. The bankruptcy court is a unit of the federal district court.
26. What fees are charged in a Chapter 13 case?
There is a $306 filing fee charged when the case is filed, which may be paid in installments if necessary. In addition, the Chapter 13 trustee assesses a fee of up to 10 percent on all payments made under the plan. Thus, if a debtor pays a total of $10,000 under a Chapter 13 plan, the total amount of fees charged in the case will be $1306 (a $1,000 trustee’s fee, plus the $306 filing fee). These fees are in addition to the fee charged by the debtor’s attorney and the Trustee.
27. Will a person lose any property if he or she files under Chapter 13?
A person usually does not lose property when he or she files for Chapter 13. Under Chapter 13, creditors are usually paid out of the debtor’s income and not from the debtor’s property. However, if a debtor has valuable nonexempt property and has insufficient income to pay enough to creditors to satisfy the court, some of the debtor’s property may need to be used to pay creditors.
28. How does filing under Chapter 13 affect collection proceedings and foreclosures previously filed against the debtor and allow debtors to protect their property?
In a typical first bankruptcy filing, filing a Chapter 13 case automatically stays (stops) all lawsuits, attachments, garnishments, foreclosures and other actions by creditors against the debtor or the debtor’s property, except in certain cases involving residential landlord tenant matters. A few days after the case is filed, the court will mail a notice to all creditors advising them of the automatic stay. Certain creditors may be notified sooner, if necessary. Most creditors are prohibited from proceeding against the debtor during the entire course of the Chapter 13 case. If the debtor is later granted a Chapter 13 discharge, creditors will then be prohibited from collecting the discharged debts from the debtor after the case is closed.
29. May a person who has filed for a mortgage modification (HAMP) or intends to do also file for a Chapter 13 bankruptcy?
Yes. This will not prevent a person from filing any type of bankruptcy case — including a Chapter 13 case. However, the Trustee will be required to approve the terms of the HAMP.
30. How does filing under Chapter 13 affect a person’s credit rating?
Filing a Chapter 13 case may worsen a person’s credit rating at least temporarily. However, typically a debtor’s credit will improve rapidly especially after most of a person’s debts are paid off in the plan, which will be taken into account by credit reporting agencies. If very little is paid on most debts, the credit-rating effect of a Chapter 13 case may be similar to that of a Chapter 7 case.
31. Are the names of persons who file under Chapter 13 published?
When a Chapter 13 case is filed, it becomes a public record and the name of the debtor may be published by some credit reporting agencies. However, newspapers do not usually publish the names of persons who file under Chapter 13. In addition, all social security numbers must be redacted and many documents filed on a Bankruptcy do not become a part of the record;.
32. Is a person’s employer notified when he or she files under Chapter 13?
Whether or not a person’s employer is notified of Chapter 13 filing depends on the case. Some courts require a debtor’s employer to make payments to the Chapter 13 trustee on the debtor’s behalf. Typically, that is not the case in the Eastern District of Pennsylvania. The Chapter 13 trustee may contact an employer to verify the debtor’s income. However, if there are compelling reasons for not informing an employer in a particular case, it may be possible to make other arrangements to obtain the required information and payments. Government employers may not discriminate against a person as to employment (See below.)
33. Does a person lose any legal rights by filing under Chapter 13?
No. Filing under Chapter 13 is not a criminal proceeding. Therefore, a person does not lose any legal or constitutional rights by filing a Chapter 13 case.
34. May employers or government agencies discriminate against persons who file under Chapter 13?
No. It is illegal for either private or government employers to discriminate against a person as to employment because that person filed under Chapter 13. However, since some employers may still discriminate in defiance of the law, debtors may wish to be as surreptitious about the bankruptcy as possible, (See #31 above), It is also illegal for local, state or federal government agencies to discriminate against a person as to the granting of licenses (such as a driver’s license), permits, student loans and similar grants because that person filed under Chapter 13.
35. What is required for court approval of a Chapter 13 plan?
The court may confirm a Chapter 13 plan if the plan complies with the legal requirements of Chapter 13; all required fees, charges and deposits have been paid; all priority claims will be paid in full under the plan; the plan was proposed in good faith; each unsecured creditor will receive at least as much as they would have received had the debtor filed under Chapter 7; it appears that the debtor will be able to make the required payments and comply with the plan; and each secured creditor has been dealt with in the manner described in the answer to Question 16 (above).
36. When does a debtor have to appear in court in a Chapter 13 case?
Most debtors have to appear in court at least twice: once for a hearing called the meeting of creditors and once for a hearing on the confirmation of the debtor’s Chapter 13 plan. The meeting of creditors is usually held about a month after the case is filed. The confirmation hearing may be held on the same day as the meeting of creditors but usually at a later date. The debtor’s testimony typically will not be lengthy at either hearing. If difficulties or unusual circumstances arise during the course of a case, additional court appearances may be necessary.
37. What if the court does not approve a debtor’s Chapter 13 plan?
If the court does not approve the plan proposed by a debtor, the debtor may modify the plan and seek court approval of the modified plan. The most common objectors to confirmation will be the Trustee or creditors, who may feel that the plan does not provide adequately for their claims. In the EDPA, the Trustee will indicate the changes desired in the minutes of the 341 meeting. The plan may then be modified so as to become acceptable to the court. Alternatively, a debtor who finds the recomposed plan too dear may either convert the case to Chapter 7 (if eligible) or dismiss the case. Sometimes if the circumstances are appropriate, the Debtor may also be able to apply for and receive what is called a “hardship discharge”.
38. How are the claims of unsecured creditors handled under Chapter 13?
Unsecured creditors must file their claims with the bankruptcy court within 90 days after the date set for the meeting of creditors in order for their claims to be allowed. Unsecured creditors who fail to file claims within that period are barred from doing so and upon completion of the plan, their claims will be discharged. The debtor may file objections to any claims that he or she disputes. The Chapter 13 trustee begins paying unsecured creditors as provided for in the Chapter 13 plan
39. What if the debtor is temporarily unable to make the Chapter 13 payments?
If the debtor is temporarily out of work, injured or otherwise unable to make the payments required under a Chapter 13 plan, the plan can usually be modified so as to enable the debtor to resume payments when he or she is able to do so. If it appears that the debtor’s inability to make the required payments will continue indefinitely or for an extended period, the case may be dismissed or converted to Chapter 7.
40. What if the debtor incurs new debts or needs credit during a Chapter 13 case?
Only two types of credit obligations or debts incurred after the filing of the case may be included in a Chapter 13 plan: debts for taxes that become payable while the case is pending and consumer debts arising after the filing of the case that are for property or services necessary for the debtor’s performance under the plan and that are approved in advance by the Chapter 13 trustee. All other debts or credit obligations incurred after the case is filed must be paid by the debtor outside of the plan. Some courts issue an order prohibiting the debtor from incurring new debts during the case unless they are approved in advance by the Chapter 13 trustee. Therefore, approval from the Chapter 13 trustee should be obtained before incurring credit or new debts after the case has been filed. The incurrence of regular debts, such as debts for telephone service and utilities, do not require the trustee’s approval.
41. What should the debtor do if he or she moves while the case is pending?
If a debtor moves, he or she should immediately notify the bankruptcy court and the Chapter 13 trustee in writing of the new address. Most communications in a Chapter 13 case are by mail, and if the debtor fails to receive an order of the court or a notice from the Chapter 13 trustee because of an incorrect address, the case may be dismissed. Many courts have change-of-address forms that may be used if the debtor moves.
42. What if the debtor later decides to discontinue the Chapter 13 case?
The debtor has the right to either dismiss a Chapter 13 case or convert it to Chapter 7 (if eligible) at any time for any reason. However, if the debtor simply stops making the required Chapter 13 payments, the court may compel the debtor or the debtor’s employer to make the payments and to comply with the orders of the court. Therefore, the debtor who wishes to discontinue a Chapter 13 case should do so through his or her attorney.
43. What happens if a debtor is unable to complete the Chapter 13 payments?
A debtor who is unable to complete the Chapter 13 payments has three options: dismiss the Chapter 13 case, convert the Chapter 13 case to Chapter 7 (if eligible) or close the case and obtain a partial Chapter 13 discharge if the debtor is unable to complete the payments due to circumstances for which he or she should not be held accountable.
44. What is the role of the debtor’s attorney in a Chapter 13 case?
In a typical Chapter 13 case, the debtor’s attorney usually:
- Examines the debtor’s financial situation and determines whether Chapter 13 is a feasible alternative for the debtor and, if so, whether a single or a joint case should be filed
- Assists the debtor in the preparation of the bankruptcy petition, schedules and the chapter 13 plan.
- Examines the liens or security interests of secured creditors to ascertain their validity or avoidability and takes the necessary steps to advance the debtor’s interest in such matters
- Revises and implements methods of dealing with secured creditors
- Revises the schedules revises the Chapter 13 plan so that it is acceptable to the court
- Files the Chapter 13 forms and pleadings with the court and pays or provides for the payment of the filing fee
- Attends the meeting of creditors, the confirmation hearing and any other court hearings required in the case
- Checks the creditor claims filed in the case, files objections to improper claims and attends court hearings thereon
- Negotiates with objecting creditors to resolve issues.
- Assists the debtor in overcoming any legal obstacles that may arise during the course of the case
- Assists the debtor in obtaining a discharge upon the completion or termination of the plan
45. How are the fees I pay my attorney set?
Generally speaking, the fee charged by an attorney for representing a debtor in a Chapter 13 case must be reviewed and approved by the bankruptcy court. This rule is followed whether the fee is paid to the attorney prior to or after the filing of the case and whether it is paid to the attorney directly by the debtor or by the Court. The court will approve a fee only if it finds the fee to be reasonable. Most courts, including the EDPA, for administrative convenience however do establish so called “no look” fees for Chapter 13 cases; if this fee or less is charged then the Court will automatically approve the fee.
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