Chapter 13 Bankruptcy – Petition to Keep Family Home, Vehicles, Household Items

Once the loan modification or note renegotiation fails, and the homeowner wants to keep the family home, another alternative is to file a Chapter 13 bankruptcy petition to avoid foreclosure.

In fact, foreclosures are reportedly on the rise; and the filing of a Chapter 13 bankruptcy petition results in an automatic stay of: (1) any action against the debtor or the debtor’s property to collect amounts owed to creditors, (2) any enforcement of judgment against the debtor, and (3) repossession or foreclosure on any property of the debtor.

This injunction implemented by the Bankruptcy Code, 11 USC §362(a), is in fact one of the most powerful tools available to a debtor. It keeps creditors at bay while the debtor reorganizes in a Chapter 13 petition.

More importantly, the family home can be saved from foreclosure without a substantial cash payment, which cannot be done in a Chapter 7 petition.

Also, cars and appliances and assets can be saved from repossession; and the interest rate and even the balance of some consumer debts can be reduced in a Chapter 13 petition.

Therefore, the great advantage of a Chapter 13 petition is the discharge of debts without losing non-exempt property, provided the debtor pays creditors no less than the value of the non-exempt assets the debtor retains, according to a Confirmed payment plan not to exceed five (5) years.

Minimum requirements for a Chapter 13 petition:

A._ Amount of Debts:

As a form of consumer reorganization, a Chapter 13 petition is available only to individuals with less than $336,900 in unsecured, discharged, and non-contingent debts, and less than $1,010,650 in secured, discharged, and non-contingent debts, pursuant to 11 USC §109(e), adjusted every three (3) years according to the Consumer Price Index.

B. Regular income:

The debtor must have regular (gross) income, at the beginning of the case and for the next 3-5 years, depending on the plan period, the entire available part of which must be dedicated to paying creditors according to the payment. plan. Disposable income is current monthly income less: (1) the amount needed for the maintenance or support of the debtor or a dependent of the debtor, (2) charitable contributions not to exceed 15 percent of gross annual income, and (3) the amount necessary for the operation of the business, if the debtor is involved in it, according to 11 USC §1325(b)(2).

C. Petition for Prior Bankruptcy:

If the debtor had filed a Chapter 7 petition and obtained a discharge during the 4-year period before the filing of a later Chapter 13 case, or obtained a discharge in a prior Chapter 13 during the 2-year period before the filing a subsequent Chapter 13 case, the debtor will not be eligible for another discharge in a subsequent Chapter 13 case.

This prohibition at 11 USC §1328(f), added by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), seeks to end the so-called “Chapter 20”, that is, filing a Chapter 13 after a Chapter 7 to obtain a discharge of debts that had survived the Chapter 7 discharge.

If a previous Chapter 13 petition was dismissed with prejudice to refiling another case for 180 days, no case may be refiled within the 180-day period.

D. Credit Counseling Report:

Finally, the Chapter 13 debtor must have received a credit counseling report from an approved agency within 180 days prior to filing the petition, per 11 USC §109(h)(1).

Exigent circumstances may warrant a 30-day extension and an additional 15 days, if granted by the Bankruptcy Court for cause, pursuant to 11 USC §109(h)(3).

Credit counseling is available from approved credit counseling agencies on the US Trustee Program website, to the debtor via the Internet, in person, or by phone. The filing fee plus miscellaneous administrative fee for a Chapter 13 petition is $235.00 plus $39.00 equals $274.00.

Chapter 13 repayment plan within 15 days of filing the petition:

A Chapter 13 debtor must file a payment plan for the commitment period, pursuant to 11 USC §1321. The commitment period is determined based on the applicable “means test” under the Chapter 7 petition. If the debtor’s current monthly income times 12 is less than the applicable state median income for the debtor’s household, the plan cannot exceed three (3) years, unless the bankruptcy judge approves a longer period not to exceed 5 years. , under 11 USC §1322(d)(2).

A. Full Payment of Guaranteed Claims:

A Chapter 13 debtor must pay secured claims (home mortgage loans, auto loans, and home equity financing with interest on purchase money) in full, plus interest, and pre-petition arrears can be cured with the payment of interest at an appropriate rate. rate through the plan. As for real estate claims, the Chapter 13 plan generally requires the debtor to make regular monthly mortgage payments directly to the creditor.

Loans unsecured by the debtor’s principal residence, such as loans secured by personal property, can be divided into the secured portion (replacement value) that must be paid in full with interest and the unsecured balance that can be paid from 0 to 100 percent without interest under the plan for unsecured claims.

B. Payment of General Unsecured Claims:

Unsecured non-priority claims (priority claims are internal support claims, administrative claims [debtor’s attorney’s fee and Chapter 13 trustee’s fee]and priority tax claims) must be paid under a Chapter 13 plan at least what would be paid in a Chapter 7 case.

These claims include credit card debt, judgment debt without bond filing, signature loans, and the unsecured portion of certain secured claims. The amounts to be paid to unsecured creditors can be a certain percentage (such as 100%, 70%, 0%, etc.) of the amounts of the credits, or prorated from the available funds, after the payment of the priority credits and guaranteed allowed. .

C. Initial Plan Payment:

Initial payments under the Chapter 13 plan must be made no later than thirty (30) days after the filing of the plan or the filing of the petition, whichever occurs first, unless otherwise ordered by the Bankruptcy Court, otherwise pursuant to 11 USC §1326(a)(1).

The debtor is obligated to make direct payments to secured creditors until confirmation of the plan, unless otherwise ordered by the Bankruptcy Court. Most Chapter 13 trustees will accept cashier’s checks or money orders, as disbursing agents for debtors’ estates, making disbursements once a month.

D. Confirmation of the Plan:

Creditors and the Chapter 13 trustee review the plan and supporting documentation. They may object to the plan, accompanied by a motion to dismiss, if the requirements of 11 USC §1325(a) are not met.

If no objections are filed or the objections are overturned, the plan will be confirmed by the Bankruptcy Court at a confirmation hearing held no earlier than twenty (20) days and no later than forty-five (45) days after the date of Section 341(a) meeting of creditors conducted by the trustee.

(The author, Roman P. Mosqueda, has practiced bankruptcy law for more than fifteen (15) years, representing debtors, creditors and trustees).