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Vermont Bankruptcy Services

Law Office James Palmisano
417 Barre Street
Montpelier, Vermont 05602
Phone: (800) 585-3169
Phone: (802) 229-4001
Fax: (802) 229-2733

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.:CHAPTER 13:.

While Chapter 7 cses usually last about three months, Chapter 13 cases last from three to five years.  Chapter 13 Bankruptcy helps individuals, or small proprietary business owners (NOT a corporation or partnership), to repay their creditors over time.  Among other things, it offers an opportunity to stop foreclosures and repossessions by paying off past due mortgage or car payments over 36-60 months, giving you time to catch up on your payments.  Chapter 13 bankruptcy is a debt repayment plan for individuals, but often times the repayment can be anywhere from zero to 100% of your unsecured debt.

One purpose of Chapter 13 is to enable a debtor to retain certain assets that might not be fully exempt and would otherwise be liquidated by a Chapter 7 Trustee.  It also provides an alternative to Chapter 7 when you have too much "disposable income" (your net monthly income exceeds your net monthly expenses by too much) and usually yields much lower monthly payments than you were previously paying and (here's the real benefit), after 36 months, you are done!  The remaining portion of your debts are discharged. (See below)  It also enables you sometimes to discharge debts that would not be discharged in a Chapter 7, such as a fraud judgment, certain tax obligations, fines, penalties, and other debts.

Who may file Chapter 13 bankruptcy?

Only an individual with regular income who owes, on the date you file the petition, less than $360,475 in unsecured debt and $1,081,400 in secured debts (Adj April 1, 2010).  These amounts  are adjusted on April 1 every three years 11 U.S.C. 109. The debts used to calculate these limits must also be noncontingent and liquidated, meaning that they must be for a certain, fixed amount (or easily determinable amount) and not subject to any conditions or bona fide disputes. If they are legitimately disputed or not liquidated, then those amounts may not be factored into the debt limit calculations. For cases filed after October 17, 2005, you may be required to do a Chapter 13 if your annual income exceeds the median income for the region where you are filing and if the "means test" shows you have more than $100-$167 per month to pay to your creditors.  Also at that time, your allowable monthly expenses will primarily be whatever is allowed under local IRS guidelines.

What are the benefits of Chapter 13?

Chapter 13 protects individuals from the collection efforts of creditors and provides individuals the opportunity to repay their debts through reduced payments.  It will stop foreclosures, repossessions and wage garnishments.

You may be able to discharge debts in a Chapter 13 that would be nondischargeable under other chapters, for example, fraud judgments and certain tax obligations.

You may be able to get rid of junior mortgages and liens on your real property.  If the fair market value of your property is less than the total amount owed to the 1st mortgage, then you can eliminate the security interest to any junior lienholders and treat them as general unsecured creditors in your plan (thereby being able to possibly pay them less than 100%).

Certain tax repayments can be made easier by virtue of elimination of interest payments.

How does Chapter 13 work and how long does it last?

First of all, you must have "regular income".  Meaning, you must have some source of income that is regular, or at least can be averaged regularly on an annual basis, for example.

Typically, the Plan payments last for 36 months, unless additional time is requested, but in no event will they last more than 60 months. Therefore, if your payment analysis shows, for example, that you can afford to pay $200.00 per month (above and beyond your normal living expenses), you would pay that each month to the Chapter 13 Trustee, who would disperse it pro rata among your creditors.  At the end of 36 months, you are discharged from all dischargeable unsecured debts, regardless of how much your creditors have received.

In addition to your plan payments, you must stay current with any ongoing obligations you have to secured creditors, such as on your mortgage.  Chapter 13 (or any chapter of bankruptcy for that matter) only affects debts that you owe on or before you filed the bankruptcy.  Therefore, on your mortgages and other secured debts, you must stay current on those payments after date of your bankruptcy filing.

How much will I have to pay each month?

The size of your monthly plan payments is determined by the amount you can afford to pay after paying necessary living expenses (including insurance, mortgage payments, etc.).  You must prove your income to the Trustee. Usually this is done with paycheck stubs.  In the case of a business, you would need to average out your income and expenses for the last 6-12 months.  When calculating monthly expenses you should include everything you pay money for such as food, clothing, utilities, auto maintenance, etc.  You cannot include payments on unsecured debts, since those will be discharged in the bankruptcy. 

If you miss any payments at all that are due under your Plan, your case will be dismissed by the Court.

What debts can be discharged in Chapter 13?

The discharge in a chapter 13 case is somewhat broader than in a chapter 7 case. First of all, any debt that you CAN discharge in a Chapter 7, will also be dischargeable in a Chapter 13.  Other debts dischargeable in a chapter 13, but not in chapter 7, include debts for willful and malicious injury to property (as opposed to a person), debts incurred to pay nondischargeable tax obligations, and debts arising from property settlements in divorce or separation proceedings. 11 U.S.C. § 1328(a).

IN ADDITION, CHAPTER 13 ENABLES YOU TO DISCHARGE:

Income Tax debts that are over 3 years old from the date the returns were last due (usually April 15 of a given year) and that were either never assessed or assessed more than 240 days prior to the filing of the bankruptcy case--even if you never filed the returns.  Assessment dates of a tax can only be determined by obtaining a transcript of your taxes from the taxing agency in question (and for state entities, sometimes that isn't even sufficient.

Sales and excise taxes that are over 3 years old from the date the transaction occurred giving rise to the tax, or from the date the returns were due.

What are the most common reasons for filing CHAPTER 13:

1: Failure to pass Chapter 7 “means test”
2: Home mortgage in arrears
3: Tax problems
4: Ineligible for Chapter 7 because it’s been less than 8 years since the last one
5: Non-exempt Assets that Chapter 7 Trustee would sell
6: Can still cram down cars that were purchased more than 910 days ago
7: Can still rewrite/cram down interest on all cars in the plan – Till is still good law
8: Return of car recently repo’d that is main form of transportation
9: Individual wants to repay their debts

 

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