What is the Process in a Chapter 13 Bankruptcy Case?

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What is the Process in a Chapter 13 Bankruptcy Case?

As you might imagine, a Chapter 13 case is far more complex than a Chapter 7 case. It’s the type of case no borrower gets through without a lawyer.

There are, for example, a lot more places, reasons, and ways for creditors to make objections when you file a Chapter 13 case. There is a lot more paperwork and there are a lot more steps. 

Here’s what to expect.

Step 1 – Initial Consultation

After meeting with and retaining your attorney, it will be time to sit down and gather all your financial documents. During this consultation we’ll be working to make sure we don’t miss anything about your financial situation.

Once we’ve made sure everything is in order, and that there are no problems which could threaten your ability to get a discharge, it’s time to file.

Step 2 – Filing & Automatic Stay

The automatic stay goes into effect as soon as you file your case, though it might take your creditors a little while to get their notice. Once you have a case number, though, you can simply report the case number, along with the name and number of your attorney, to any creditor who calls or tries to take action against you.

They’ll each receive formal letters notifying them of the stay, but keep your case number handy.

Step 3 – Proposed Repayment Plan

You will have to make payments on your plan before there is a formal 341 hearing thanks to the way federal deadlines are structured. Just keep in mind the payment your attorney proposes, and the first one you make, may not be the payment the trustee ultimately accepts.

Step 4 – 341 Meeting

The 341 Meeting of Creditors gives representatives from all of your creditor companies the chance to ask you questions while you’re under oath. Often, they don’t even attend, but you shouldn’t count on that.

The trustee will be able to ask you questions as well. He or she will mostly be trying to determine if the schedule is true, complete, and correct.

Assuming you’ve included everything and are making no attempt to defraud the court,  this entire process should go off without a hitch.

Step 5 – Plan Approval

At this point the trustee and the creditors must approve or object to your payment plan

This is the first point in the case where you will really need an attorney’s help. This is the part of the case where people start filing objections and motions, where points of law and procedural issues enter the debate. 

Step 6 – Financial Education

You’ll need to complete the financial education course that’s required by law. You cannot get your discharge until you’ve completed this course, and have filed the resulting certificate with the court.

Typically you can take the class online. Your attorney can point you in the right direction.

Step 7 – Plan Payments

This is the longest part of the bankruptcy. For the next three to five years you’ll make payments to the trustee. The trustee will then distribute the money, starting with debts that can’t be discharged, moving on to secured debts, and then finishing off with unsecured, lower-priority debts.

During this time you’ll be required to report any changes in circumstances to your trustee. This could include sudden increases or decreases in income, unemployment, sudden windfalls of money, or anything that changes your financial circumstances.

You may request a modification of your plan during this step, but only if your situation has changed enough to warrant it.

For example, you can’t get a modification if, after 9 months of paying into the plan, you decide you just can’t afford the payments. The plan is based on a budget based on the information you provided, and if that information is correct then the plan should be affordable.

But if you lose your job and your income plummets by 50% then a modification makes perfect sense.

Step 8 – Completed Plan

When you’ve made the final payment the trustee will send you a Notice of Completed Plan Payments. The court will review all the facts of the case, and will make sure there aren’t any facts that might disqualify you from receiving your discharge.

In most cases, the court will issue a Notice of Intent to Enter Discharge. All interested parties will have 14 days to object if they have any objections.

Usually, though not always, any objections have long been met and dealt with by now. 

Step 9 – Follow-up

Your attorneys will usually have to nudge creditors to take certain necessary actions at this point. For example, if you were behind on your mortgage when you went into your Chapter 13 plan then your attorney might have to make sure the mortgage company provides you with written acknowledgement that your plan is now current.

All of these actions will pertain to secured debts. Unsecured debts have already been 100% dealt with. 

Step 10 – Final Decree

Once all the lingering issues of the case have been cleared up the court will issue a final decree, closing the case. You get to breathe a sigh of relief, knowing you’ve achieved your fresh start. 

See also:

Is Chapter 13 a Better Option Than Debt Consolidation?

What You Need to Know About Obtaining Assets After Filing Chapter 13 Bankruptcy

Why You Must Understand the Difference Between Chapter 7 and Chapter 13 Bankruptcy

Chapter 13 Bankruptcy Offers Tax Deductions for Pennsylvania Filers

How Are Chapter 13 Payments Determined in a Philadelphia Bankruptcy Case?

 

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