FAQ's about CHAPTER 13 BANKRUPTCIES

Below are questions frequently asked by individuals considering filing for bankruptcy under Chapter 13. The responses are intended to provide you with a general understanding of various events occurring during the bankruptcy process. You should consult your attorney before taking any action regarding these matters.

1. When do I get my discharge? After completion of the payments under the Chapter 13 Plan that has been confirmed by the Bankruptcy Court. Normally, this will be a 3 year, 4 year, or 5 year plan.

2. What role does the Chapter 13 Trustee play in the case? The Chapter 13 Trustee performs many roles. The Trustee serves as a disbursing agent for payments under the plan. The Trustee examines the debtor at the meeting of creditors. The Trustee can also object to confirmation of the plan and makes a determination in each case whether the debtor has satisfied the “disposable income test,” the “means test,” and the “best interest of creditors test.” If one or more of these tests are, it is the Trustee's duty to object to confirmation. The Trustee can also file a motion to dismiss the Chapter 13 case for a "bad faith filing" or for failure to make payments called for by the plan.

3. What is the meeting of creditors and what happens? The meeting of creditors is a scheduled meeting conducted by the Chapter 13 Trustee where the debtor is examined under oath concerning his assets and debts. Creditors who choose to attend the meeting either in person or through their attorney can ask questions concerning anything relevant to the case. As a practical matter, creditors rarely attend the meeting of creditors. The average meeting of creditors lasts about 3 to 5 minutes and is held approximately 40 days after the Chapter 13 bankruptcy petition is filed. It is mandatory for all debtors to attend the meeting of creditors. An attorney will accompany you to the hearing.

4. What is the “means test”? Under the new bankruptcy laws that went into effect in October 2005, all Chapter 13 debtors are required to file a Means Test Calculation along with their Bankruptcy Petition, Schedules and Statements, and other required documents. Generally, a means test is performed by looking at all of the debtor’s income for the 6 months preceding the date of filing, determining the average monthly income, and multiplying that figure by twelve. The resulting figure is then compared to the median income in the state of Florida for a household of similar size. If the debtor is over the median income, then further tests are conducted to determine how much, if any, disposable income the debtor has at the end of month. Often the disposable income must be dedicated over the life of the Bankruptcy plan to paying unsecured creditors. This analysis is completed by your attorney.

5. What is the "disposable income test" in Chapter 13? In some cases the debtor must commit all of his net take-home pay to the plan for the life of the plan. In practice, this means that the plan payment plus reasonable and necessary living expenses must account for all the net take-home pay. If there is any net take-home pay leftover the extra income is dedicated to the unsecured creditors. If the unsecured creditors are paid in full, the "disposable income test" does not come into play in most cases. Your disposable income should be calculated by your attorney prior to filing your plan.

6. What is the "best interest of creditors test" in Chapter 13? This test requires the debtor to make sure that under the Chapter 13 Plan, the unsecured creditors receive at least as much under Chapter 13 as they would receive if the case were handled under Chapter 7. This involves completing a liquidation analysis on paper in order to determine what the unsecured creditors would receive under Chapter 7. The Chapter 13 Plan must provide at least that much to the unsecured creditors. This analysis should be completed by your attorney.

7. When is the first plan payment due, who gets paid, and how are the payments made? The first payment is due 30 days after the plan is filed. The payment is made by cashiers check or money order payable to the Chapter 13 Trustee. The debtor's name and case number must appear on the face of the check or money order. The payments are sent to a lock box in Orlando as instructed in a letter sent to the debtor by the Chapter 13 Trustee at the beginning of the case. The Trustee will send a coupon book to be used with each payment.

8. Can I obtain credit while I am making payments on my Chapter 13 Plan? You must obtain permission from the Chapter 13 Trustee or the Court to incur new debt while you are in a Chapter 13 bankruptcy. It is difficult to get the Trustee or the Court to approve new credit until the plan is confirmed, which normally occurs two to three months after the case is filed. Even after confirmation, the procedure requesting the Trustee or court approval is quite cumbersome: the Trustee has a form that must be filled out and a current income and living expense analysis must be provided along with a copy of the financing arrangement for which approval is being sought. This also assumes that a lender has been found who is willing to loan money to an individual in a Chapter 13 bankruptcy.

10. Can I transfer ownership of my home, car, boat, collectibles, tools, etc. to someone else to keep these items out of bankruptcy?No. Such transfers will almost invariably violate Florida's fraudulent transfer statute and 11 U.S.C. §548 of the Bankruptcy Code. The Chapter 13 Trustee has the power to set these transfers aside. The Trustee can also ask for the case to be dismissed for a "bad faith filing." Moreover, federal law could be invoked to initiate criminal proceedings based on bankruptcy crimes.

11. Are NSF checks dischargeable in Chapter 13? Often, the answer is yes because creditors usually elect not to go through the expense of challenging it under federal law. However, bankruptcy does not generally prevent the creditor from trying to get the State Attorney's Office to threaten prosecution to force restitution on the NSF checks.

12. Are certain debts dischargeable in Chapter 13 that are not dischargeable in Chapter 7? Yes. Credit card fraud, embezzlement, larceny, defalcation, conversion, and certain IRS debt owed by non-filers can be discharged in Chapter 13. Alimony, child support, student loans, personal injury in DUI cases and certain IRS debt are not dischargeable in Chapter 13.

13. Can the Trustee or a creditor object to confirmation of a Chapter 13 Plan? Yes. It is the Trustee's responsibility to object to Chapter 13 Plans that are deficient. A creditor may also object, but generally most objections will come from the Chapter 13 Trustee. Most objections are worked out or resolved prior to the confirmation hearing but occasionally the court has to take evidence and rule.

14. How long does bankruptcy remain on my credit bureau report and can I obtain credit before that time period runs? A Chapter 13 bankruptcy can be kept in the public records section of your credit bureau report for 10 years. Once your Chapter 13 discharge is entered, if certain income and employment conditions are met, new automobile financing is available at most new car dealerships in Jacksonville. If certain conditions are met, new mortgage financing is usually available after discharge with 15% down payment available. VA and FHA financing becomes available two years after discharge. Credit card solicitations will begin almost immediately after discharge.

15. Can only one spouse file a Chapter 13 and stop foreclosure on a house owned by both spouses? Yes. This occurs quite frequently. If one of the spouses does not need to be in bankruptcy other than for the foreclosure, then that particular spouse can be left out of the bankruptcy. Sometimes, we file Chapter 7 for one of the spouses and Chapter 13 for the other spouse. For example, this permits the Chapter 7 spouse to get an automobile financed sooner. An attorney should be consulted concerning this type of situation.

16. Will my credit union or bank close my bank accounts if I file Chapter 13? If the credit union will lose money as a result of your bankruptcy, they will close your account and ask you to leave the credit union. This often occurs when there is a signature loan, credit card debt or an unsecured debt created after an automobile is valued in a Chapter 13. This situation needs to be discussed with an attorney. Banks normally do not make you close out your account unless you have a long history of NSF checks.

17. What effect will a Chapter 13 have on a co-debtor who does not file bankruptcy? The Chapter 13 will show-up on the non-filing co-debtors credit bureau report alongside of the joint debt. It won't show in the public records section. If it is not a consumer debt or if it is a consumer debt but will not be paid in full under the Chapter 13 Plan, the creditor may proceed against the non-filer.

18. What is a co-debtor stay? If the joint debt is a consumer debt (secured or unsecured) and the plan proposes to pay the debt in full, the creditor is blocked by the Chapter 13 filing from taking collection action against the non-filing co-debtor

19. Can my employer fire me for filing bankruptcy? No. Federal law 11 U.S.C. §525 is the anti-discrimination section of the Bankruptcy Code that precludes a public or private employer from discriminating against any employee solely because he or she filed for bankruptcy. Employers usually honor this section and there are remedies if they try to violate it.

20. What happens if I inherit something during the 3 to 5 years that I am paying creditors under my Chapter 13 Plan? The inheritance must be turned over to the Chapter 13 Trustee to be distributed to the unsecured creditors up to the extent of the allowed unsecured claims. If the potential exists for this to occur, you need to discuss the matter with an attorney to look at some options.

21. If my Chapter 13 does not work, can I convert the case to Chapter 7? Yes. If the Chapter 13 Plan cannot be amended to handle changes in your financial affairs, you may find it advisable to convert to Chapter 7. You should consult your attorney before taking any such action.

22. What if I previously filed a Chapter 13 but my case was dismissed – can I file another Chapter 13? Under the new Bankruptcy laws that went into effect in October 2005, if you have had a case pending within the 12 months of filing a new case, the automatic stay, which stops your creditors from taking actions to collect on your debts (i.e. foreclosure, repossession), is only in effect for 30 days. Within 30 days you must attend a hearing in front of one of our bankruptcy judges to explain why your previous case was dismissed and why your new case will be successfully completed. The court will determine whether or not to extend the automatic stay. However, if there are special circumstances which the court should be made aware of, we may be able to file an adversary proceeding in which we will be given the opportunity to explain your circumstances to the court and the court will decide whether or not to impose the stay.

23. Is there life after bankruptcy? Absolutely. Credit can be reestablished and should be used discretely and only as reasonably necessary. Our firm conducts a "Life After Bankruptcy" workshop free of charge to the firm's clients. Please consult our "Life After Bankruptcy" page for additional information.

25. What is financial education and must I take it? In order to be eligible for a bankruptcy discharge debtor must take a financial education course from an approved provider. The course usually lasts two hours and costs about $50.00. For Chapter 13 debtors, the course is offered by the Chapter 13 Trustee free of charge. The course cannot be taken until after your bankruptcy has been filed and you have been assigned a case number. Upon completion of the course a certificate will be issued to you. The certificate must be filed with the bankruptcy court before your projected discharge date. If you become eligible for discharge and have not completed the course and filed the certificate with the court, your case may be closed without a discharge being issued. You must then pay to have your case re-opened for the sole purpose of filing your certificate of financial education completion.

Some advantages to the debtor by choosing to file under Chapter 13 rather than Chapter 7.