NJ Chapter 13 Bankruptcy Lawyers Explain Qualifying For Debt Relief

This chapter discusses six aspects of a Chapter 13 proceeding: the advantages of choosing Chapter 13, the Chapter 13 eligibility requirements, how a Chapter 13 proceeding works, making the plan work, and the special Chapter 13 discharge.

Any individual, even if self-employed or operating an unincorporated business, is eligible for Chapter 13 relief as long as the individual’s unsecured debts are less than $360,475 and secured debts are less than $1,081,400. 11 U.S.C. § 109(e). These amounts are adjusted periodically to reflect changes in the consumer price index. A corporation or partnership may not be a Chapter 13 debtor. Id.

An individual cannot file under Chapter 13 or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or comply with orders of the court or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. 11 U.S.C. §§ 109(g), 362(d) and (e). In addition, no individual may be a debtor under Chapter 13 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. 11 U.S.C. §§ 109, 111. There are exceptions in emergency situations or where the U.S. trustee (or bankruptcy administrator) has determined that there are insufficient approved agencies to provide the required counseling. If a debt management plan is developed during required credit counseling, it must be filed with the court.

How Chapter 13 Works

A Chapter 13 case begins by petitioning the bankruptcy court serving the area where the debtor has a domicile or residence. Unless the court orders otherwise, the debtor must also file with the court:

(1) schedules of assets and liabilities;

(2) a schedule of current income and expenditures;

(3) a schedule of executory contracts and unexpired leases; and

(4) a statement of financial affairs. Fed. R. Bankr. P. 1007(b).

The debtor must also file a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling; evidence of payment from employers, if any, received 60 days before filing; a statement of monthly net income and any anticipated increase in income or expenses after filing; and a record of any interest the debtor has in federal or state qualified education or tuition accounts. 11 U.S.C. § 521. The debtor must provide the Chapter 13 case trustee with a copy of the tax return or transcripts for the most recent tax year and tax returns filed during the case (including tax returns for prior years that had not been filed when the case began). Id. A husband and wife may file a joint petition or individual petitions. 11 U.S.C. § 302(a). (The Official Forms may be purchased at legal stationery stores or downloaded online at www.uscourts.gov/bkforms/index.html. They are not available from the court.)

The courts must charge a $235 case filing fee and a $39 miscellaneous administrative fee. Normally, the fees must be paid to the court clerk upon filing. However, they may be paid in installments with the court’s permission. 28 U.S.C. § 1930(a); Fed. R. Bankr. P. 1006(b); Bankruptcy Court

Miscellaneous Fee Schedule – Item 8. The number of installments is limited to four, and the debtor must make the final installment no later than 120 days after filing the petition. Fed. R. Bankr. P. 1006(b). For cause shown, the court may extend the time of any installment as long as the last installment is paid no later than 180 days after filing the petition. Id. The debtor may also pay the $39 administrative fee in installments. If a joint petition is filed, only one filing fee and one administrative fee are charged. Debtors should be aware that failure to pay these fees may result in dismissal of the case. 11 U.S.C. § 1307(c)(2).

Bankruptcy Forms

In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, the debtor must compile the following information:

• A list of all creditors and the amounts and nature of their claims;
• The source, amount, and frequency of the debtor’s income;
• A list of all of the debtor’s property and
• A detailed list of the debtor’s monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.

Married individuals must gather this information for their spouse regardless of whether they are filing a joint petition, separate individual petition, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse are required so that the court, the trustee, and creditors can evaluate the household’s financial position.

When an individual files a Chapter 13 petition, an impartial trustee is appointed to administer the case. 11 U.S.C. § 1302. In some districts, the U.S. trustee or bankruptcy administrator (2) appoints a standing trustee to serve in all Chapter 13 cases. 28 U.S.C. § 586(b). The Chapter 13 trustee evaluates the case and serves as a disbursing agent, collecting payments from the debtor and making distributions to creditors. 11 U.S.C. § 1302(b).

Filing the petition under chapter 13 “automatically stays” (stops) most collection actions against the debtor or the debtor’s property. 11 U.S.C. § 362. Filing the petition does not, however, stay certain actions listed under 11 U.S.C. § 362(b), and the stay may be effective only for a short time in some situations. The stay arises from the operation of law and requires no judicial action. If the stay is in effect, creditors may not initiate or continue lawsuits, wage garnishments, or even make telephone calls demanding payments. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by the debtor.

Chapter 13 also contains a special automatic stay provision that protects co-debtors. Unless the bankruptcy court authorizes otherwise, a creditor may not seek to collect a “consumer debt” from any individual who is liable along with the debtor. 11 U.S.C. § 1301(a). Consumer debts are those incurred by an individual primarily for personal, family, or household purposes. 11 U.S.C. § 101(8).

Chapter 13 And Stay Of Foreclosure

Individuals may use a Chapter 13 proceeding to save their home from foreclosure. The automatic stay stops the foreclosure proceeding when the individual files the Chapter 13 petition. The individual may then bring the past-due payments current over a reasonable time. Nevertheless, the debtor may still lose the home if the mortgage company completes the foreclosure sale under state law before the debtor files the petition. 11 U.S.C. § 1322(c). The debtor may also lose the home if he or she fails to make the regular mortgage payments due after the Chapter 13 filing.

Between 20 and 50 days after the debtor files the Chapter 13 petition, the Chapter 13 trustee will hold a meeting of creditors. If the U.S. trustee or bankruptcy administrator schedules the meeting at a place that does not have regular U.S. trustee or bankruptcy administrator staffing, the meeting may be held no more than 60 days after the debtor files. Fed. R. Bankr. P. 2003(a). During this meeting, the trustee places the debtor under oath, and the trustee and creditors may ask questions. The debtor must attend the meeting and answer questions regarding his or her financial affairs and the proposed terms of the plan.11 U.S.C. § 343. If a husband and wife file a joint petition, they must attend the creditors’ meeting and answer questions. To preserve their independent judgment, bankruptcy judges are prohibited from attending the creditors’ meeting. 11 U.S.C. § 341(c). The parties typically resolve problems with the plan during or shortly after the creditors’ meeting. Generally, the debtor can avoid problems by ensuring the petition and plan are complete and accurate and by consulting with the trustee before the meeting.

In a Chapter 13 case, to participate in distributions from the bankruptcy estate, unsecured creditors must file their claims with the court within 90 days after the first date set for the meeting of creditors. Fed. R. Bankr. P. 3002(c). A governmental unit, however, has 180 days from the date the case is filed to file a proof of claim.11 U.S.C. § 502(b)(9).

Advantages of Chapter 13

Chapter 13 offers individuals several advantages over liquidation under Chapter 7. Perhaps most significantly, chapter 13 allows individuals to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time. Nevertheless, they must make all mortgage payments due during the Chapter 13 plan on time. Another advantage of Chapter 13 is that it allows individuals to reschedule secured debts (other than a mortgage for their primary residence) and extend them over the life of the Chapter 13 plan. Doing this may lower the payments. Chapter 13 also has a special provision that protects third parties liable to the debtor on “consumer debts.” This provision may protect co-signers. Finally, chapter 13 acts like a consolidation loan under which the individual makes the plan payments to a Chapter 13 trustee, who then distributes payments to creditors. Individuals will have no direct contact with creditors while under Chapter 13 protection.

After the creditors’ meeting, the debtor, the Chapter 13 trustee, and those creditors who wish to attend will appear in court for a hearing on the debtor’s Chapter 13 repayment plan.

Contact our experienced NJ Chapter 13 bankruptcy lawyers

Call the NJ bankruptcy attorneys of Aiello, Harris, Abate Law Group PC today at (732) 253-4512 or contact us. You can schedule an appointment at one of our office locations across New Jersey.