Who can file Chapter 13 Bankruptcy? To be eligible to file for Chapter 13, you must be an individual (not a business), you must have regular income, and you must have secured debt under $1,081,400 and unsecured debt under $360,475. If you do not have regular income, you might qualify for a Chapter 7 bankruptcy. If your debt is too high, you might qualify for an individual Chapter 11 bankruptcy case. What is a Chapter 13 and how is it different from a Chapter 7? The basic difference between Chapter 7 and Chapter 13 is that under Chapter 7 a trustee sells any property of the debtor that is not exempt to pay creditors.  In a Chapter 13, the debtor makes payments to a Chapter 13 trustee over time, and those payments go to pay the creditors. As a practical matter, under Chapter 7 the debtor may not lose much, if any, property, since most household goods and a reasonable amount of assets are considered exempt.  But if there are assets that are not exempt or have too much value, the trustee will sell them and pay the creditors. In a Chapter 13, the debtor usually keeps all their property and pays off all or a percentage of their debts. ________________________________________________________________________________________ What is a Chapter 13 and how is it different from a Chapter 7? The basic difference between Chapter 7 and Chapter 13 is that under Chapter 7 a trustee sells any property of the debtor that is not exempt to pay creditors. In a Chapter 13, the debtor makes payments to a Chapter 13 trustee over time, and those payments go to pay the creditors. As a practical matter, under Chapter 7 the debtor may not lose much, if any, property, since most household goods and a reasonable amount of assets are considered exempt. But if there are assets that are not exempt or have too much value, the trustee will sell them and pay the creditors. In a Chapter 13, the debtor usually keeps all their property and pays off all or a percentage of their debts. ________________________________________________________________________________________ Can I keep my house? Many times, a Chapter 13 can stop a foreclosure and allow you to keep your house. You will have to be able to make the mortgage payments.  Any past due payments can be "cured" over the life of a plan. ________________________________________________________________________________________ Do my spouse and I both need to file? No. In some cases where only one of you has debts, or under other conditions, it might be advisable to only have one spouse file. Since Washington is a community property state, even if only one spouse files, all of the couple's community property may be subject to your bankruptcy. If you are contemplating a bankruptcy filing by only one spouse, you should consult an attorney. ________________________________________________________________________________________ Can I keep my possessions? My car? You are entitled to protect your possessions using exemptions under either federal or state law. You can protect some equity in your residence ($125,000 under Washington law), vehicles, household goods, life insurance, retirement plans (including IRA's and your 401(k)), clothing, and some items related to your job. If you don't own a residence, or have very little home equity, you might be able to use the federal exemption protection for personal property. You can, in most cases, reaffirm your auto loan or keep an auto lease in place, and keep your car. If the chapter 13 plan pays unsecured creditors the value of non-exempt assets, those non-exempt assets can be retained. ________________________________________________________________________________________ Will the calls and collection actions stop? One of the major benefits of filing for protection under Chapter 7 is that most creditor actions are stayed, or stopped. This means that debt collection efforts, garnishments and foreclosure are stopped. As soon as a creditor becomes aware that you have filed for bankruptcy, the creditor must stop all efforts to collect the debt. If there is an ongoing garnishment or foreclosure, you should tell us so that we can contact the creditor immediately. A creditor wishing to proceed with action against the debtor or its property must obtain permission from the Court. If the creditor continues to try and collect once they become aware of the bankruptcy, they may be liable for court sanctions, damages and attorneys fees. ________________________________________________________________________________________ Do I have to go to Court? Yes. About 30 to 40 days after your bankruptcy case is filed, you will have to attend a hearing with the Chapter 13 bankruptcy trustee. Notice of this meeting is mailed to all of your creditors who are invited to attend the meeting. This hearing is called the First Meeting of Creditors, or the Section 341 Meeting. At this hearing, the Trustee will swear you in and ask you questions about your bankruptcy petition, assets, debts and other matters. After the Trustee is finished asking questions, creditors will have the opportunity to ask you questions. Most of the time, creditors do not attend. An attorney will attend the hearing with you. After this hearing, you will, most likely, not have to attend any other Court hearings. ________________________________________________________________________________________ What is a Chapter 13 plan? The chapter 13 plan is a written plan presented to the bankruptcy court that states how much money or other property you will pay to the Chapter 13 trustee, how long your payments to the Chapter 13 trustee will continue, how much will be paid to each of your creditors, which creditors will be paid outside of the plan and certain other technical matters. The Chapter 13 Plan lasts 36 to 60 months. ________________________________________________________________________________________ What is a "regular source of income"? You must have "stable and regular" income to be eligible for Chapter 13 bankruptcy. That doesn't mean you must earn the same amount every month. But the income must be steady-that is, likely to continue, and it must be periodic-weekly, monthly, quarterly, semiannual, seasonal, or even annual ________________________________________________________________________________________ Who is the Chapter 13 trustee? The Chapter 13 trustee is a person appointed by the United States trustee to collect your payments, make payments to your creditors in the manner set forth in your plan, and administer your chapter 13 case until it is closed. In some cases the Chapter 13 trustee is required to perform certain other duties. You are always required to cooperate with the Chapter 13 trustee. ________________________________________________________________________________________ How much of a debtor's income must be paid to the Chapter 13 trustee under a Chapter 13 plan? Usually all of your and your spouse's disposable income must be paid to the Chapter 13 trustee. Disposable income is income received by the debtor and his or her spouse that is not reasonably necessary for the support of the debtor and the debtor's dependents. Calculating disposable income is a little tricky, your attorney will work with you to get it right. You will begin making payments to the Chapter 13 trustee within 30 days after the debtor's plan is filed in the court, and the plan must be filed with the court within 15 days after the case is filed. The payments must be made regularly, usually on a weekly, biweekly, or monthly basis. If you are employed, the Chapter 13 trustee will usually require the payments to be made by the debtor's employer, via a wage deduction. Otherwise, the payments can be made directly by you. ________________________________________________________________________________________ What if I am temporarily unable to make my Chapter 13 payments? If you are temporarily out of work, injured, or otherwise unable to make the payments required under a Chapter 13 plan, the plan can usually be modified so as to enable you to resume the payments when you are able to do so. If it appears that your inability to make the required payments will continue indefinitely or for an extended period, the case may be dismissed or converted to Chapter 7. ________________________________________________________________________________________ What if I later decide to discontinue the Chapter 13 case? You have the right to either dismiss a Chapter 13 case or convert it to Chapter 7 at any time for any reason. ________________________________________________________________________________________ What happens if my creditor has collateral securing the payment of debt? A secured debt is simply a debt in which the creditor has a lien on some item of property to "secure" your payment of the debt.  The most common types of secured debts are a mortgage on a home and a lien on a car. In Chapter 13 cases, secured claims are handled in one of two basic ways. The first, is where past due payments on secured debts are paid, in equal installments, from your monthly bankruptcy plan payments. Your future payments (payments that come due after filing bankruptcy) are paid either from your monthly bankruptcy plan payments, or directly from you to the creditor. When the bankruptcy plan has terminated, you remain obligated to make any payments remaining due on the secured debts. The second method is called the "cram-down" method. This method is used either when the collateral is worth less than the amount of the debt, or when the number of payments left on a debt is less than the length of the plan. You can strip-down the creditor claim to the value of its collateral, stretch-out the payments to 36 months and pay the present value of the claim at a reduced interest rate ("cram-down"). The ability to "refinance" your secured loans through this second method permitted by Chapter 13 bankruptcy lets you reduce the monthly payments and is sometimes the only way to have enough cash flow to keep your property. ________________________________________________________________________________________ Must all debts be paid in full under a chapter 13 plan? No. While priority debts, such as debts for alimony, maintenance and support and debts for taxes, and fully secured debts must be paid in full under a chapter 13 plan, only an amount that the debtor can reasonably afford Fast be paid on most debts. The unpaid balances of most debts that are not paid in full under a chapter 13 plan are discharged upon completion of the plan. ________________________________________________________________________________________ Must all unsecured creditors be treated alike under a chapter 13 plan? No. If there is a reasonable basis for doing so, unsecured debts can be divided into separate classes and treated differently. It may be possible, therefore, to pay certain unsecured creditors in full while prying little or nothing to others. ________________________________________________________________________________________ Do all the creditors have to approve a chapter 13 plan? No. To become effective, a chapter 13 plan must be approved by the court, not by the creditors. The court cannot approve a plan unless secured creditors are dealt with as described below. Also, unsecured creditors are permitted to file objections to the debtor's plan, and these objections must be ruled on by the court before it can approve the debtor's chapter 13 plan. How are secured creditors dealt with under chapter 13? There are four methods of dealing with secured creditors under chapter 13: 1.The creditor may accept the debtor's proposed plan (which may include a cram-down) 2.The creditor may retain its lien and be paid the full amount of its secured claim under the plan, 3.Debtor may surrender the collateral to the creditor, or 4.The creditor may be paid or dealt with outside of the plan. How are cosigned or guaranteed debts handled under chapter 13? If a cosigned or guaranteed consumer debt is being paid in full under a chapter 13 plan, the creditor may not collect the debt from the cosigner or guarantors. However, if a consumer debt is not being paid in full under the plan, the creditor may collect the unpaid portion of the debt from the cosigner or guarantors A consumer debt is a nonbusiness debt. Creditors may collect business debts from cosigners or guarantors even if the debts are to be paid in full under the debtor's plan. ________________________________________________________________________________________ May a self-employed person file under chapter 13? Yes. A self-employed person meeting the eligibility requirements listed in the answer to Question 18 above may file under chapter 13. A debtor engaged in business may continue to operate the business during the chapter 13 case. ________________________________________________________________________________________ How does filing under chapter 13 affect a person's credit rating? It may worsen it, at least temporarily. However, if most of a person's debts are ultimately paid off under a chapter 13 plan, that fact may be taken into account by credit reporting agencies. If very little is paid on most debts, the credit-rating effect of a chapter 13 case may be similar to that of a chapter 7 case. ________________________________________________________________________________________ Are the names of persons who file under chapter 13 published? When a chapter 13 case is filed, it becomes a public record and the name of the debtor may be published by some credit reporting agencies. However, newspapers do not usually publish the names of persons who file under chapter 13. ________________________________________________________________________________________ Is a person's employer notified when he or she files under chapter 13? In most cases, yes. Many courts require a debtor's employer to make payments to the chapter 13 trustee on the debtor's behalf. Also, the chapter 13 trustee may contact an employer to verify the debtor's income. However, if there are compelling reasons for not informing an employer in a particular case, it may be possible to make other arrangements for the required information and payments. ________________________________________________________________________________________ Does a person lose any legal rights by filing under chapter 13? No. Filing under chapter 13 is a civil proceeding and not a criminal proceeding. Therefore, a person does not lose any legal or constitutional rights by filing a chapter 13 case. ________________________________________________________________________________________ May employers or government agencies discriminate against persons who file under chapter 13? No. It is illegal for either private or governmental employers to discriminate against a person because that person has filed under chapter 13. It is also illegal for local, state, or federal governmental agencies to discriminate against a person as to the granting of licenses, permits, student loans, and similar grants because that person has filed under chapter 13. ________________________________________________________________________________________ What is required for court approval of the chapter 13 plan? The court may confirm a chapter 13 plan if: 1. the plan complies with the legal requirements of chapter 13, 2. all required fees, charges, and deposits have been paid, 3. all priority claims will be paid in full under the plan, 4. the plan was proposed in good faith, 5. each unsecured creditor will receive under the plan at least as much as it would have received had the debtor filed under chapter 7, 6. it appears that the debtor will be able to make the required payments and comply with the plan, and 7. each secured creditor has been dealt with in the manner described in the answer to Question 16 above.