Your Chapter 13 Repayment Plan

The central feature of a Chapter 13 bankruptcy is the repayment plan. The Chapter 13 plan is a proposal by the debtor to repay certain debts in installments over three to five years. A plan must be filed within 14 days after the bankruptcy petition is filed, and a copy or summary of the plan is mailed to all creditors. Creditors or the bankruptcy trustee may object to the debtor’s plan which may require modification. Ultimately the repayment plan must be “confirmed” by the bankruptcy court. 

Many Chapter 13 plans make no payments to unsecured creditors.  The amount paid to unsecured creditors is largely guided by the outcome of the bankruptcy means test, which makes an initial presumption of the debtor’s ability to pay unsecured creditors over three to five years. The Chapter 13 Plan must provide payment of at least as much for unsecured creditors as they would have received had the debtor filed a Chapter 7 liquidation bankruptcy.  Any priority claims must be paid in full and include a plan for paying secured debts during the plan term.  Long term debts, like a mortgage payment or student loans, do not need to be paid off during the plan term, but the plan may provide for the cure of a defaulted note. 

Plan payments are made to the Chapter 13 Trustee, who receives a fee for distributing the debtor’s monthly payment to creditors.  The debtor’s first plan payment is due 30 days after the case is filed, however the Chapter 13 Plan may not be confirmed by the bankruptcy court until a later date.  If a debtor fails to commence making plan payments to the trustee, a motion to dismiss the case will be filed.  In most cases is recommended that the debtor execute a voluntary wage withholding to pay the Chapter 13 Trustee, although there is no requirement to do so. 

If you are considering a Chapter 13 bankruptcy, it is important to discuss your repayment plan with your attorney. While it is possible to amend a repayment plan when your financial circumstances change, you and your attorney should propose a Chapter 13 plan that is both affordable and realistic.  The success of your Chapter 13 case depends upon your ability to follow through with your plan.

Is Debtors’ Prison Making a Comeback?

In the early days of this country it was common for debtors to be imprisoned until their debt was paid. Popular history records that the last debtors’ prison was closed in the 19^th century and the practice of incarcerating a person on account of a debt was abolished. However, the prohibition against debtors’ prison has always had its loopholes; the most well-known examples are tax evasion and child support delinquency. In one case a former corporate lawyer, H. Beatty Chadwick, was imprisoned for more than 14 years for failing to turn over money related to a divorce case. The judge who released him decided that after 14 years Mr. Chadwick either could not or would not pay. 

Since the start of the recession more debtors are being arrested for not paying debts. The Washington Post reports that “more than a third of all U.S. states allow borrowers who can’t or won’t pay to be jailed.” This process generally occurs after an individual fails to show up to court, but sometimes results from failing to make court-ordered payments to a creditor.  In one case the Post reports that a 26 year old woman was arrested for failing to show up to a court hearing over a $1,159.87 credit card debt. When she posted a $500 bond, that money was turned over to the creditor. 

While many state judges appear to be using the power of their office to influence debtors to pay their creditors, these judges cannot circumvent the power of the federal bankruptcy laws. When a debtor files bankruptcy, all debts owed prior to the date of the bankruptcy fall under the jurisdiction of the federal bankruptcy judge. All state court proceedings must automatically stop, including the execution of a state court contempt of court warrant to coerce payment. This automatic stay is a very powerful protection and gives the debtor a chance to propose a plan to either discharge the debt or repay it over time. 

If you are threatened with a lawsuit, don’t ignore it. Speak with an experienced bankruptcy attorney and learn how the federal bankruptcy laws can protect your income, your property, and even your freedom.

How Often Can I File Bankruptcy?

The federal bankruptcy laws do not limit the number of times an individual can file for bankruptcy protection. When an individual is facing overwhelming debt and needs relief from creditors, the bankruptcy laws provide powerful protection. In some cases that protection can be a discharge of debt. In other cases, it means an opportunity to repay what is owed. 

An individual may file multiple bankruptcies for many reasons. When a discharge of debt is needed, the federal law limits time between discharges. After you receive a discharge in a previous Chapter 7 bankruptcy case, you must wait 8 years before you can receive another Chapter 7 discharge; and 6 years to receive a Chapter 13 discharge.  If you received a discharge in a previous Chapter 13 bankruptcy case, you must wait 4 years before you can receive a Chapter 7 discharge; and 2 years to receive another Chapter 13 discharge. 

The above time periods are measured from the date the previous case was filed.  For instance, if you filed a Chapter 7 bankruptcy on June 1, 2005, then on June 1, 2013 you will be eligible to file a Chapter 7 bankruptcy case and receive a discharge. However, on June 1, 2011 you are eligible to file a Chapter 13 bankruptcy and receive a discharge. 

In some cases a discharge is not needed. A debtor can file a Chapter 13 bankruptcy and repay debts without receiving a discharge. In this situation there is no legal limitation between bankruptcy cases. This strategy is especially useful when faced with non-dischargeable debts that must be fully paid. The obligation is paid over time under the supervision and protection of the bankruptcy court.  In some rare cases of abuse a bankruptcy court will deny the debtor relief. This may occur when a debtor has shown a history of repeated bankruptcy filings that have been dismissed. 

If you have received a discharge and need the protection of the bankruptcy laws for a second time, discuss your situation with an experienced bankruptcy attorney. The bankruptcy laws are meant to help the honest, but unfortunate debtor and can help you straighten out a difficult financial dilemma.

Who Will Know About My Bankruptcy?

One of the most common questions asked about the bankruptcy process is, “Who will know about my bankruptcy case?”  Filing bankruptcy is usually very confidential, but the Bankruptcy Code and Federal Rules of Bankruptcy Procedure dictate that notice of your bankruptcy case must be sent to certain individuals and businesses. 

Bankruptcy is a legal process and is a matter of public record.  Few newspapers will publish bankruptcy filings in the “public notices” section.  While this was a common practice for newspapers in the past, the sheer number of bankruptcy filings makes reporting personal bankruptcies impractical.  This year more than a million and a half people will file bankruptcy, and more than 5.7 million people have filed since September 30, 2005.  Unless you are a public figure or your bankruptcy case is somehow newsworthy, it likely will not appear in any section of a newspaper. 

You are required to submit a list of the names and addresses of every individual or business you owe when your case is filed.  Everyone on that list is sent a notice of your bankruptcy case.  The notice also prohibits the creditor from taking any further collection activity.  The bankruptcy court will send notices only to the names on your list of creditors, to your attorney, and a notice to your address.  Friends and family members are not sent notices unless you identify them on your list. 

Your employer may receive notice regarding your bankruptcy in a few limited circumstances.  Obviously, if you owe your employer money, your employer will be notified.  A second circumstance is when you file a Chapter 13 repayment bankruptcy and wish for your employer to withhold the plan payment from your wages.  Finally, there may be a reason to notify your employer, like if your employer is under a court order to garnish your wages. 

Since your bankruptcy case is a matter of public record, an individual may contact the bankruptcy court to obtain information about your case.  Most bankruptcy courts have an automated telephone system that will provide basic case information to the public.  Some individuals are able to access the Public Access to Court Electronic Records (PACER), an electronic public access service that allows users to obtain bankruptcy case information via the Internet.  PACER registration is free, but the system charges an access fee per page. 

The typical bankruptcy case is quick and confidential.  However, every case is different.  If you have specific questions about the effects of filing bankruptcy, consult with an experienced bankruptcy attorney.  Your attorney can explain the benefits of the federal bankruptcy laws and the process for discharging your debts.

I Have My Bankruptcy Discharge. Now What?

You should obtain a copy of your credit report immediately after receiving your bankruptcy discharge. Federal law entitles you to one free credit report from the “big three” credit reporting agencies, Experian, Equifax, and TransUnion, every twelve months. The easiest way to obtain your free credit report from each of these agencies is by visiting AnnualCreditReport.com. 

After receiving your free credit reports, check each report for errors. First, any debt discharged by your bankruptcy should be listed as “Discharged in Bankruptcy” with a “Zero Balance.” Second, there should not be any negative activity reported after the date that you filed your bankruptcy case. This includes any new collection agency report after your filing date. Third, any debt that was reaffirmed should not be listed as “Discharged in Bankruptcy,” and should list your on-time payments. Finally, in some cases inaccurate information will be reported. For instance, a car voluntarily surrendered back to a creditor during a bankruptcy is not a “repossessed vehicle” and should not be reported as such. 

Correcting any errors on your credit report is simple and easy. Each reporting agency has procedures from contesting erroneous information, either by mail or on-line. Once the credit agency has updated its records, it must issue you a free corrected report. Review this new report for errors; do not assume that the report has been correctly amended. You may need to correspond with the agency several times and supply documentation regarding your bankruptcy case. It is your responsibility to ensure that your credit report is accurate. Neither the bankruptcy court, nor your attorney, nor your creditors are responsible for sending the credit reporting agencies information regarding your bankruptcy case. 

Updating and correcting your credit reports is the first step on the road to rebuilding your credit after bankruptcy. Fortunately, this step is free and takes very little effort. Be sure to correct your credit reports and then closely monitor your credit regularly for the first two years after your bankruptcy discharge. With timely payments and by carefully protecting your credit file, your credit score will increase quickly.

How Long Will Bankruptcy Stay On My Credit Report?

When a bankruptcy case is filed, information about the case is reported on the individual’s credit file. The report lists the date filed, the type of bankruptcy case (i.e. chapter 7, 11, 12 or 13), the case number, the case status, and closing date. The federal Fair Credit Reporting Act (FCRA) permits credit reporting agencies to keep this information on an individual’s credit report for up to ten years. Note that the FCRA does not mandate that reporting agencies list the bankruptcy for ten years; only that bankruptcy information must be removed from the individual’s credit report at that time. 

Each credit reporting agency has its own policy regarding the length it reports a bankruptcy case as a public record. In general, Chapter 7 cases are reported for ten years and Chapter 13 cases are reported for 7 years. However, the FCRA does not distinguish between Chapter 7 and Chapter 13 cases and a bankruptcy case under either chapter may be reported for up to ten years. 

The FCRA is very clear regarding when the ten year period commences. Credit reporting agencies are directed to exclude bankruptcy case information from an individual’s consumer report ten years after “the date of entry of the order for relief.” The “order of relief” is a bankruptcy term defined in Section 301 of the Bankruptcy Code as the date the bankruptcy case is filed. The day the bankruptcy case is filed is the day the ten year clock begins to run.  For instance, if a case is filed on January 1, 2012, then the bankruptcy record must be removed from a credit report before January 1, 2022. 

Knowing the time limitation for reporting your bankruptcy information is an important part of the “fresh start” promised by the bankruptcy laws. Filing bankruptcy does not brand an individual for life; bankruptcy relieves the individual of overwhelming debts and provides the opportunity for a second chance at a better future. If you need a financial fresh start, discuss your options with an experienced bankruptcy attorney.