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A decision to file for bankruptcy should be made only after determining that bankruptcy is the best way to deal with your financial problems. These questions and answers cannot explain every aspect of the bankruptcy process. If you still have questions after reading them, you should speak with an attorney familiar with bankruptcy issues or a paralegal working for a bankruptcy attorney.

What is the difference between Chapter 7 and Chapter 13?

In Chapter 7 you are subjecting your non-exempt equity in your assets to court liquidation and attempt to discharge those debts that Chapter 7 will discharge. In Chapter 13, you are reorganizing your debts by paying some or all of your debts over 3 to 5 years under a court approved plan. Whether you should choose a Chapter 7 or a Chapter 13 depends on the kinds of debts you owe, your income, the value of your assets, and several other factors.

Chapter 7 is known as "liquidation bankruptcy." In a Chapter 7 case, you file several forms with the bankruptcy court listing income and expenses, assets, debts and property transactions for the past year. A court-appointed individual, the bankruptcy trustee, is assigned to oversee your case. About a month after filing, you must attend a First Meeting of Creditors where the trustee reviews your forms and asks questions. Despite the name, creditors rarely attend the First Meeting of Creditors. If you have any non-exempt property, the trustee will ask that you turn it over to him or her. The meeting normally lasts only a few minutes. If there are no challenges from creditors, approximately 60 days later, you receive a discharge order, which is a notice from the court that "all debts that qualified for discharge were discharged." Then your case is closed and it is over.

Chapter 13 is also called "reorganization bankruptcy." You file most of the same forms as you file in chapter 7, plus a proposed repayment plan, in which you describe how you intend to repay your debts over the next three to five years. Some debts must be repaid in full; others you pay only a percentage; others may not be paid at all. Some debts you have to pay with interest; some are paid at the beginning of your plan and some at the end. A Chapter 13 Bankruptcy Trustee is assigned to oversee the case and handle your payments.

You will attend the First Meeting of Creditors about 5-6 weeks after you file. If the trustee is satisfied with your payment plan, he or she will recommend its approval by the judge. A few weeks after the First Meeting of Creditors, the judge normally confirms (approves) your plan if no creditor opposes it and the trustee has recommended it.

When a creditor or the trustee objects to a plan, the judge usually holds a hearing within a few months to determine whether your plan should be approved over the objection. It is also possible for you to resolve the objection before the judge's hearing by amending the plan to satisfy the objection. If your plan is confirmed, and you make all the plan payments called for under your plan, you will receive a discharge of any balance owed on all dischargeable debts at the end of your case.

You should consult with an attorney to decide which type of bankruptcy makes sense for you.

Who can file a Chapter 13 bankruptcy petition?

Chapter 13 is for individuals only. Corporations and partnerships may not file a Chapter 13 petition. As in Chapter 7, you must have a place of residence, a place of business, or property in the U.S. in order to file. In addition, you must have some source of income and, on the date the petition is filed, owe less than $360,475 in unsecured debt and less than $1,081,400 in secured debt. This amount is adjusted for inflation every three years. The next adjustment is scheduled for April, 2013.

Why choose Chapter 13 over Chapter 7 bankruptcy?

Although many people who file for bankruptcy choose Chapter 7, there are a number of reasons why you might select Chapter 13:

  • You cannot file for Chapter 7 bankruptcy if you received a Chapter 7 or Chapter 13 discharge within the previous six years (unless you paid off at least 70% of your unsecured debts in the chapter 13 bankruptcy). On the other hand, you can file for Chapter 13 bankruptcy at any time.
  • You have valuable non-exempt property you do not want to lose.
  • You are behind on your mortgage or car loan. In Chapter 7, you have little protection from foreclosure or repossession of your property if you are behind on payments. In Chapter 13, you can repay mortgage arrearage through your plan, and keep your home by making the future payments required under your mortgage loan contract. For a vehicle, the entire loan can be restructured and paid through your Chapter 13 plan.
  • You have debts that are non-dischargeable in Chapter 7.
  • You have co-debtors on consumer loans. In Chapter 7, the creditors will go after your co-debtors for payment if you do not pay them in full. In Chapter 13, the creditors may not seek payment from your co-debtors for the duration of your case if your Chapter 13 plan provides for full payment of co-signed debts.
  • Your income is sufficient to pay some of your debts and Chapter 7 might be considered a substantial abuse of the bankruptcy laws.
  • Your debts include tax obligations. Chapter 13 will protect you from collections by tax agencies such as the IRS and allow the repayment of tax obligations without interest or penalties.
  • You feel a moral obligation to repay that portion of your debts that you are able to.

What are the requirements for filing a Chapter 13 bankruptcy?

If you are filing a Chapter 13 bankruptcy, a proposed repayment plan must also be submitted. After reasonable monthly expenses have been paid, how much money will you have left over to put toward your outstanding bills? And how will this money be divided up among those you owe? Priority claims (such as taxes and back child support) must be paid in full; unsecured debts (like credit card debt and medical bills) are usually paid in part. Depending upon the facts in each case, unsecured debts can be paid off for as little as pennies on the dollar!

In addition to the general requirements listed above, the repayment plan must pass three tests:

  1. It must be proposed in good faith.
  2. Unsecured creditors must be paid at least as much as if a Chapter 7 bankruptcy had been filed. Generally, this is the value of all the nonexempt property you own (see California Bankruptcy Exemptions).
  3. All disposable income must be paid into the plan for at least three years (you may use up to five years in order to meet the second test that you pay at least as much as in a Chapter 7).

If you file a Chapter 13, you must begin making your plan payments to the Chapter 13 Trustee within 30 days. Generally the first payment is made directly to the Chapter 13 Trustee and the subsequent plan payments will be withdrawn directly from your paycheck at work under a wage withholding order from the Bankruptcy Court.

What is a Chapter 13 Bankruptcy and how does it work?

Chapter 13 is one form of bankruptcy in which you obtain relief from your creditors and submit a plan to pay your debts over a period of generally not less than 36 months and not more than 60 months. The Court prohibits your creditors from trying to collect any money or taking property from you during the time you are in your Chapter 13 case. You must make a regular payment by Official Bank Check, Cashier's Check, or Postal Money Order to the Chapter 13 Trustee within 30 days after filing your plan and payments must be for the period of time designated in your plan. Your first "plan payment" must be delivered to the Trustee within 30 days of the filing of your case. Thereafter, your plan payments are generally made by payroll deduction from you paycheck at work. The money collected by the Chapter 13 Trustee is disbursed to your creditors according to the plan after it is confirmed by the Court.

You will attend the First Meeting of Creditors about 5-6 weeks after you file. If the trustee is satisfied with your payment plan, he or she will recommend its approval by the judge. A few weeks after the First Meeting of Creditors, the judge normally confirms (approves) your plan if no creditor opposes it and the trustee has recommended it.

When a creditor or the trustee objects to a plan, the judge usually holds a hearing within a few months to determine whether your plan should be approved over the objection. It is also possible for you to resolve the objection before the judge's hearing by amending the plan to satisfy the objection. If your plan is confirmed, and you make all the payments called for under your plan, you will receive a discharge of any balance owed on all dischargeable debts at the end of your case.

How does Chapter 13 differ from a debt consolidation service?

In a Chapter 13 case, the Bankruptcy Court provides for a type of debt consolidation, just as private debt consolidation services do. However, only a Bankruptcy Court has the authority to:

  • Prohibit creditors from attaching or foreclosing on your property;
  • To force unsecured creditors to accept a Chapter 13 plan that pays only a portion of their claims; and
  • To discharge you from unpaid portions of debts.

Debt consolidation services have none of these powers!

If you take the debt consolidation option, you still run the serious risk of liens, lawsuits and garnishments while you are attempting to pay off your debts.

Where is a Chapter 13 case filed?

Your Chapter 13 petition is filed with the Clerk of the Bankruptcy Court in the (federal) District where you have lived, had your principal place of business, or had your principal assets located for the greater part of the last 180 days.

The Bankruptcy Court is a part of the system of federal courts and is a special court that was created by Congress just to hear cases and make decisions about disputes between debtors and creditors involved in a bankruptcy case.


San Jose Division

If you live in the Northern California counties of Santa Clara, Santa Cruz, Monterey or San Benito, your Chapter 13 Bankruptcy case will be filed in the United States Bankruptcy Court for the Northern District of California, San Jose Division. The Court's address is:

Clerk of the Court United States Bankruptcy Court
San Jose Division
280South First Street, Room 3035
San Jose, CA  95113-3099


San Francisco Division

If you live in the Northern California counties of San Mateo or San Francisco, your Chapter 13 Bankruptcy case will be filed in the United States Bankruptcy Court for the Northern District of California, San Francisco Division. The Court's address is:

Clerk of the Court United States Bankruptcy Court
San Francisco Division
235 Pine Street, 19th Floor
San Francisco, CA  94104


Oakland Division

If you live in the Northern California counties of Alameda or Contra Costa, your Chapter 13 Bankruptcy case will be filed in the United States Bankruptcy Court for the Northern District of California, Oakland Division. The Court's address is:

Clerk of the Court United States Bankruptcy Court
Oakland Division
1300 Clay Street, Room 300
Oakland, CA  94612


Santa Rosa Division

If you live in the Northern California counties of Del Norte, Mendocino, Humboldt, Napa, Sonoma, Marin or Lake, your Chapter 13 Bankruptcy case will be filed in the United States Bankruptcy Court for the Northern District of California, Santa Rosa Division. The Court's address is:

Clerk of the Court United States Bankruptcy Court
Santa Rosa Division
99 South "E" Street
Santa Rosa, CA  95404

What fees are charged in Chapter 13?

The Clerk of the Bankruptcy Court charges a $274.00 filing fee when a Chapter 13 case is filed. The legal fees for a non-business Chapter 13 case range from $2,750.00 to $4,300.00 for all basic or "base fee" services. These fees are established by federal law and local court rules and depend on the nature of your debts and the complexity of your individual case. Most of these legal fees can be paid through your plan payments. In fact, in most cases we do not require a retainer other than the filing fee to get your Chapter 13 case filed. The Chapter 13 Trustee also receives an administrative fee of up to ten percent (10%) of the amount paid under the plan.

What is the role of my attorney in a Chapter 13 case?

Your attorney provides a full range of services throughout the bankruptcy process. These services include:

  • Analyzing the amount and nature of the debts you owe and determining the best remedy for your financial problems.
  • Assisting you in preparing a budget.
  • Examining the liens or security interests of secured creditors to determine whether they are valid or avoidable and how they should be valued, and taking the legal steps necessary to protect your interest.
  • Assisting you in drafting your Chapter 13 plan so that it meets your personal needs and is acceptable to the Chapter 13 Trustee and Bankruptcy Judge.
  • Preparing the necessary pleadings and Chapter 13 forms.
  • Filing the Chapter 13 forms and pleadings with the Bankruptcy Court.
  • Attending the meeting of creditors, the confirmation hearing, and any other court hearings required in the case.
  • Assisting you in receiving confirmation (court approval) of a Chapter 13 plan.
  • Reviewing the claims filed in the case, filing objections to improper claims, and attending court hearings on such objections.
  • Modifying your plan, if necessary, to deal with changed circumstances.
  • Assisting you in overcoming any legal obstacles that may arise in the case.
  • Assisting you in obtaining a discharge upon the completion of the plan.

How do I know the attorney's fee is fair?

The fee charged by a bankruptcy attorney for representing you in a Chapter 13 case must be reviewed and approved by the Bankruptcy Court. The Bankruptcy Judge will only approve a fee if they find it to be reasonable. In most cases, the Chapter 13 attorney fees are paid through your Chapter 13 plan payments. In many places, like the Northern District of California, the Bankruptcy Courts have set fee guidelines which attorneys must comply with in Chapter 13 cases.

How does the Chapter 13 Trustee receive her fees?

Fees for the Chapter 13 Trustee are taken only when a disbursement is made to your creditors, including your attorney. The Chapter 13 Trustee takes a percentage of up to 10 percent of all money disbursed. The Trustee continues to take fees until all of your creditors have been paid according to your confirmed plan. Your annual financial reports issued by the Trustee show you how much the Trustee has received to date.

Why is your Chapter 13 case number important?

At the time your Chapter 13 Petition is filed, the Clerk of the Bankruptcy Court assigns you a seven digit case number. The first two digits represent the year in which your case was filed. Your case number is very important. Remember your case number is your account number with the Chapter 13 Trustee. You will need it whenever you call the Trustee's office and when you make your plan payment to the Trustee your case number should be clearly written on your money order. We also use your case number as our file number for your case in our office. You should use this number whenever you contact us about your case.

Do all your creditors have to approve your Chapter 13 plan?

No. Your Chapter 13 plan is approved by the court, not your creditors. However, creditors are permitted to file objections to your plan and these objections must be ruled on by the court before it approves your Chapter 13 plan.

"My friend went through bankruptcy and he says. . ."

You have probably already received or will receive advice on what to do from well-meaning friends and relatives who have themselves experienced financial problems. Just like no two people are alike, no two "Chapter 13 Bankruptcies" are alike. Take the advice of your well-meaning friends and acquaintances with the proverbial "grain of salt." If you have a specific question about anything related to your bankruptcy, make it your rule to ASK YOUR ATTORNEY, and s/he will try to provide you with an answer that applies to your special situation.

What should I expect my attorney to do in a Chapter 13 Bankruptcy?

Exactly what you may expect of your attorney will be governed by the fee agreement the two of you have made and that has been filed with your case. Under the rules of the Bankruptcy Court, your attorney must continue to appear and represent you until the judge permits your attorney to withdraw from your case. Any attorney may only withdraw from a case for "good cause" after proper notice to you.

Your attorney's function is to aid and assist you in successfully completing your Chapter 13 plan. Your attorney is there to answer any questions or concerns regarding your plan and the legal consequences of your case. Remember, your attorney is your legal advisor, not the Trustee. The Trustee and her staff are not allowed to give you legal advice regarding your case.

What may I expect from the Chapter 13 Trustee?

The Chapter 13 Trustee's main function is to administer the funds received from you. If you have a question about your plan's receipts and disbursements, you may wish to call the Trustee's office. Trained telephone service representatives are available during office hours to answer your questions.

The Trustee is not able to talk with you personally about your case. Her staff is familiar with the policies and guidelines of Chapter 13 and is well qualified to discuss with you any problems you may have implementing your plan. Remember, however, that the Trustee and her staff cannot and will not give you legal advice.

When will I have to appear in court in a Chapter 13 case?

In the United States Bankruptcy Court for the Northern District of California, you will have to appear for at least one court hearing generally known as the First Meeting of Creditors or the 341 meeting. This meeting is conducted by the Chapter 13 Trustee. The Bankruptcy Judge will not be attending this meeting. This meeting will be held within 30 to 60 days after your case is filed. You will be notified of the time, date and place of this hearing by your attorney and by the Trustee. This is a mandatory court appearance on your part. Your failure to appear at this meeting will result in the dismissal of your Chapter 13 case.

Your job at the 341 meeting is to appear, show the trustee your photo identification and proof of Social Security number, and truthfully answer all the questions asked by the Trustee. The Trustee's questions usually deal with your bankruptcy schedules and questionable items in your monthly budget. This meeting is also an opportunity for your creditors to appear and ask you questions, though most creditors never appear at the 341 meeting. Your lawyer will attend this meeting with you. The Trustees usually schedule 5 of these meetings every 30 minutes, so the actual time spent on your 341 meeting will be usually be less than 5 minutes.

There is also a Confirmation hearing in your case (i.e., final approval of your plan), but these are almost always handled by your attorney and the Chapter 13 Trustee without you.

May I change to Chapter 7 if my Chapter 13 is not working out for me?

Yes. A Chapter 13 case may be converted to a Chapter 7 case at any time. You should contact your attorney if you are considering converting your case. Additional legal and court fees must be paid before a case can be converted to Chapter 7.

What effect does filing under Chapter 13 have on lawsuits filed against me?

Under federal law, the filing of a Chapter 13 case automatically stops or stays all lawsuits, attachments, foreclosures, garnishments, repossessions, and other actions by creditors against either you or your property. A few days after your case is filed, a notice is mailed by the Bankruptcy Court or Trustee to all of your creditors advising them of this automatic stay. The creditors may be notified sooner by either you or your attorney if necessary.

Once you are protected from your creditors under the Federal Bankruptcy Laws of the United States of America, we advise our clients to simply tell any creditors that continue contact them that they have filed for Chapter 13 relief and that they are represented by an attorney. Clients are also advised to provide their case number and our telephone number. This is all you need to say to any creditor.

If you receive any verbal or written demands from creditors more than four (4) weeks from the date your case was filed, you should notify your attorney. If the contact is by telephone, then you need to obtain the telephone number of the person calling you, the name of the creditor or the collection agent, the mailing address for such party, the name of the person who called you, and how much money they want you to send. The best way to get this information is to "act stupid" and "be nice." If the contact is by mail, then you need to save the envelope for proof of the postmark date. You should notify your attorney of any such contacts.

Please note that creditors who contact you after being advised of your bankruptcy case are subject to various sanctions for contempt of Court and other violations of Federal Law. In many cases, the Bankruptcy Court will order such creditors to pay money damages to you (including legal fees to your attorney) for such violations. Most bankruptcy attorneys take these cases on a contingency fee arrangement. In short, unless your attorney recovers money damages from these creditors you will not owe him any additional legal fees for pursuing these type claims. Please be assured that the Bankruptcy Court takes these matters very seriously and that they are vigorously pursued by our attorneys.

Will my creditors be able to take my wages or property while the Chapter 13 case is in effect?

No. The automatic stay remains in effect during the entire Chapter 13 case and your creditors will not be permitted to take or otherwise proceed against any of your property or assets, including your earnings. However, if secured creditors to whom you are in default are not being paid under the plan or if you are not making your direct home mortgage payments, these creditors may go to the Bankruptcy Court and seek permission to repossess the property upon which they have a valid lien. Creditors secured by vehicle loans may also have your vehicle stored if you fail to maintain insurance on the vehicle securing the loan.

There are some exceptions to this general rule. The most common being child support, income tax refunds and certain property tax situations. For example, the IRS may apply your tax refund against any taxes included in your plan. The IRS must notify the Trustee of this action, but it is otherwise lawful. Specific questions regarding your situation and whether these exceptions apply to your case should be discussed with your attorney.

May I repay some of my creditors and not others under Chapter 13?

You cannot selectively "pick and choose" some particular creditors and decide to pay them "on the side." All of your debts must be dealt with through the Court. Any payments which you make to a creditor must be paid under the authority of the Court, by the terms of the law, and not by any personal desires. If you want to pay creditors, you must do so through your Chapter 13 plan.

Are student loan debts dischargeable?

Most student loans are not discharged in bankruptcy. You should refer more specific questions to your attorney.

Can you file Chapter 13 if you are self-employed?

Yes. A self-employed person meeting the eligibility requirements may file under Chapter 13. You can also continue to operate your business during a Chapter 13 case.

Can you file Chapter 13 if you are unemployed?

Yes. If you have income from other sources, such as unemployment, disability benefits or family support, you may file a Chapter 13. Any "regular" income may support your repayment plan.

How long does a Chapter 13 plan last?

A Chapter 13 plan must last for three years unless all debts can be paid off in full in less time. However, a Chapter 13 plan can last for as long as five years if necessary.

How much of your income must be paid to the Chapter 13 trustee under a Chapter 13 plan?

Usually all of your and your spouse's disposable income for a three-year period must be paid to the Chapter 13 trustee. Disposable income is income that is not reasonably necessary for the support of you and your dependents.

When do you begin making payments to the Chapter 13 trustee and how do you make them?

You must begin making payments to the Chapter 13 trustee within 30 days after your repayment plan is filed with the court. The payments must be made regularly, usually on a weekly, biweekly, or monthly basis. The payments can be made either directly by you or by your employer through a payroll deduction.

What happens if you are unable to complete the chapter 13 payment plan?

If you are unable to complete the chapter 13 payment plan, you have four options:

  1. Seek a modification of your chapter 13 plan due to your changed circumstances,
  2. dismiss the chapter 13 case,
  3. convert the chapter 13 case to chapter 7, or
  4. if you are unable to complete the payments due to circumstances for which you should not be held accountable, you can ask the court for a "hardship discharge," which may partially discharge your debts.

end faq




While the information presented is accurate as of the date of publication, it should not be cited or relied upon as legal authority. It should not be used as a substitute for reference to the United States Bankruptcy Code (title 11, United States Code) and the Federal Rules of Bankruptcy Procedure, both of which may be reviewed at local law libraries, or to local rules of practice adopted by each bankruptcy court. Finally, this publication should not substitute for the advice of competent legal counsel.

 
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