When you file for bankruptcy in Pennsylvania, you’ll naturally have many questions to ask your Philadelphia bankruptcy lawyer. One of the very first questions you should discuss with your attorney is which type, or chapter, of bankruptcy is most appropriate for you. If you are trying to reorganize your debts, you will most likely want to file for Chapter 13 bankruptcy, assuming you are able to meet the eligibility standards for doing so. Sadek & Cooper Law Offices explains how Chapter 13 is used to reorganize debts in Pennsylvania, and discusses a few of the basic requirements involved in a Chapter 13 reorganization plan.
Chapter 13 Reorganization Definition
Chapter 13 bankruptcy is easier to understand if you have a little background information about its counterpart Chapter 7, which is the most commonly used type of personal (non-business) bankruptcy in Pennsylvania.
Chapter 7 bankruptcy is called “liquidation” because a court-appointed trustee is charged with the task of selling off any assets the debtor has not protected with the federal bankruptcy exemptions or Pennsylvania bankruptcy exemptions (which Pennsylvania residents can choose between, unlike residents of many other states). This doesn’t necessarily mean Chapter 7 debtors lose all of their belongings – for example, it makes no financial sense for the trustee to sell the debtor’s home if, as is frequently the case, the house has no equity – but it does open up possibilities for liquidation, which many debtors will understandably want to avoid wherever possible.
If you want to file for bankruptcy, but are also determined to keep your home, car, and other assets, Chapter 13 may be a viable alternative to Chapter 7. In contrast to Chapter 7, which is a liquidation bankruptcy, Chapter 13 bankruptcy is a reorganization bankruptcy, meaning the debtor – ideally with assistance from an experienced Chapter 13 lawyer – will propose a plan to restructure his or her debts in such a way that he or she is able to make monthly payments over a three- to five-year period (36 to 60 months). This allows the debtor to keep his or her belongings, unlike Chapter 7. Some debts do not need to repaid at all, while others must be repaid in part, and still others repaid in full. It depends on whether the debt is classified as a priority debt, a secured debt, a nonpriority debt, or an unsecured debt.
The federal court system describes a plan of reorganization as a “detailed description of how the debtor proposes to pay creditors’ claims over a fixed period of time.” The reorganization plan only exists in Chapter 13 bankruptcy, and is not a feature of Chapter 7.
Chapter 13 Plan Requirements
While each Chapter 13 reorganization plan is different, every plan shares a few basic traits and requirements in common. To begin with, each reorganization plan must be submitted to, and approved by, the bankruptcy court administering the case before the debtor is permitted to move ahead. The debtor’s proposed reorganization plan is not considered confirmed or valid until it has been approved by the court.
Form 2300B (or, as it is sometimes written, B2300B) is the formal name for the bankruptcy document that confirms a Chapter 13 plan of reorganization. Since bankruptcy cases are governed primarily by federal rather than state regulations – with some exceptions, such as bankruptcy exemptions, which vary from state to state – Form 2300B is used in every state, including Pennsylvania. The form clearly lists:
- The amount of each payment.
- The due date for each payment.
- How many months the payments will continue.
- The name of the trustee to whom the payments will be made.
Upon receiving your payments, the trustee will distribute the proceeds to your creditors. As a debtor, all you have to worry about is making your payments in full and on time; the trustee will take care of making sure the funds reach the right recipients in a timely fashion.
In order for a plan to be approved, the debtor needs to meet certain requirements. Because Chapter 13 requires debtors to make three to five years’ worth of monthly payments toward various debts, any Pennsylvania resident who wishes to file Chapter 13 must prove that he or she has adequate income to cover a Chapter 13 plan. Otherwise, it may be necessary to file under Chapter 7.
This is determined through a process known as “means testing,” which quite literally tests the debtor’s financial means. If you intend to declare Chapter 13 in Pennsylvania or elsewhere, you must submit:
- Form 122C-1 – This form is used to a) provide a statement of your current monthly income, and b) calculate how long your “commitment period” (the reorganization plan) should last based on your income and other factors.
- Form 122C-2 – This form is used to calculate how much disposable income you have. Your disposable income is what you will use to make the payments set forth by your reorganization plan. All of your disposable income must go toward the plan.
Philadelphia Chapter 13 Bankruptcy Lawyers for PA Residents
If you’re thinking about filing for Chapter 7 or Chapter 13 bankruptcy in Pennsylvania, the Chapter 7 bankruptcy lawyers of Sadek & Cooper Law Offices can help. With years of experience assisting thousands of men, women, married couples, and business owners with bankruptcy petitions in Philadelphia, Bucks, Delaware, and Montgomery Counties, our Pennsylvania bankruptcy attorneys have the knowledge and skill you depend on to make sure your bankruptcy case goes smoothly.
To talk about your bankruptcy options, or the potential alternatives to bankruptcy, in a free and confidential legal consultation with a Montgomery County Chapter 13 attorney, contact our law offices at (215) 995-2543 today.