Taking Responsibility and Finding Relief: Chapter 13 Bankruptcy

The housing crisis has now touched every state in America. According to the Mortgage Bankers Association, lenders will foreclose upon one in every 200 homes. The Association also reports that every three months, 250,000 new families enter into foreclosure. While there are several avenues of relief that may aid families in avoiding foreclosure, these options become less available over a short period of time. In general, and especially late in the process of facing foreclosure, filing for Chapter 13 bankruptcy remains a viable option for many Americans.Chapter 13 Bankruptcy: an IntroductionChapter 13 bankruptcy enables debtors with a steady income to implement a plan to repay part or all of their debts over a three to five year period. Upon the filing of the debtor’s payment plan, creditors are required to halt all collection efforts during the period of the payment plan, including foreclosures, repossession and lawsuits.The Chapter 13 bankruptcy process begins when a debtor files a petition with the bankruptcy court that services the debtor’s area of residence. In addition to the petition, the debtor is required to file proof of income and expenditures, schedules of assets and liabilities and tax returns, among other items. The court will charge filing and administrative fees, which may be paid in installments with permission of the court. Failure to pay the fees may result in the petition’s dismissal.Filing for Chapter 13 bankruptcy enables the court to issue an “automatic stay,” which halts all creditoraction. The bankruptcy court will provide notice to all creditors whose information is provided by the debtor. This automatic stay also protects co-debtors from most collection action. The court will appoint a Trustee to the case. The Trustee receives from the payments from the debtors and disburses the funds to the creditors according to the filed plan. The debtor must start making payments to the trustee appointed to his or her case within 30 days of filing for bankruptcy or else the case may be dismissed.Within a reasonable time (generally about a month) from the filing of the petition for bankruptcy, the debtor is required to attend a meeting of creditors where the debtor will be asked questions about the proposed payment plan and his or her financial affairs. About a month after the meeting a court hearing is held where a bankruptcy judge will determine if the payment plan is reasonable and acceptable. Generally the debtor does not have to attend this hearing, as the attorney will appear on the debtor’s behalf.EligibilityChapter 13 bankruptcy is often referred to as a “wage earner’s plan,” as only those who are employed or have another steady source of income are eligible for Chapter 13 bankruptcy. A regular income is necessary, as all plan payments must be made on time or court protection is removed and creditors may again resume action.One who wishes to file for Chapter 13 bankruptcy must also meet debt eligibility requirements. A debtor may not have more than $336,900 in unsecured debt and must not have more than $1,010,650 in secured debt.Only individuals are eligible to file Chapter 13 bankruptcy. Spouses may file individually or separately. Corporations and partnerships are not eligible to file. All individuals must have received credit counseling from an approved agency within 180 days prior to filing in order to be eligible.The Effect of Chapter 13 Bankruptcy on Foreclosure ProceedingsIn most situations, an automatic stay is entered as soon as one files for Chapter 13 bankruptcy. Regardless of where a debtor is in the foreclosure process, unless the foreclosure sale has been completed prior to the bankruptcy filing, the automatic stay will at least temporarily halt foreclosure in addition to all other creditor action. If the debtor has filed previous cases, the automatic stay may only last for a short period.If the Chapter 13 bankruptcy plan is confirmed (approved), the debtor should be able to catch up past due mortgage payments over the three to five year period of their repayment plan, provided that all new mortgage and plan payments are paid on time during that period. Debtors may also become eligible for refinancing during or at the end of their payment period.For Further ReferenceNavigating Chapter 13 bankruptcy can be a confusing and challenging process. If you or someone you care about is facing foreclosure or considering Chapter 13 bankruptcy, please contact an experienced bankruptcy attorney.