Chapter 13 bankruptcy is one of two types of bankruptcy most often filed by individuals (the other is Chapter 7 bankruptcy). The main difference between a Chapter 13 bankruptcy and a Chapter 7 case is that in a Chapter 13 bankruptcy, a filer must pay all or a portion of debt over a three- to five-year period through a repayment plan. Here’s a timeline of the steps all debtors will take in a Chapter 13 case.
Consulting With an Attorney
Filing for Chapter 13 bankruptcy is complicated, and it’s very unusual for a bankruptcy filer to complete a Chapter 13 case without an attorney. So although debtors aren’t required to hire a bankruptcy lawyer, most do.
At the first consultation, the attorney will assess your situation and recommend a course of action. You’ll likely go home with worksheets to help you gather the information about your debts, assets, income, and expenses that you’ll need to complete the bankruptcy paperwork.
Your attorney will likely take you through the following steps.
- Completing credit counseling. Before you file your case, you must take a credit counseling course with an approved agency. The agency will issue a certificate that you’ll file with your bankruptcy petition and schedules (the bankruptcy paperwork).
- Reviewing and filing the paperwork. Once you’ve done your homework, your attorney will use the information to produce the paperwork necessary to file the case. Your attorney will also calculate a repayment plan based on your income, expenses, and debts.
- Making your payments. The first Chapter 13 plan payment will be due 30 days after you file the case. You’ll also need to stay current on any obligations not included in your Chapter 13 plan, such as a mortgage or car payment (these might get paid through the plan—it will depend on your jurisdiction and your particular circumstances). Depending on the requirements of your trustee, you could make payments by money order, through an online payment system, through payroll deduction, or by a debit to your checking account.
- Attending the 341 meeting of creditors. A month or so after filing your case, you and your attorney will meet with the bankruptcy trustee appointed to administer your plan. Even though this hearing is called a 341 meeting of creditors, creditors rarely attend. The trustee uses it as an opportunity to clarify information in your paperwork, make sure that you understand the terms of your plan, and explain the trustee’s procedures and policies.
- Completing the financial management course. Sometime during the bankruptcy case, you must take a financial management course. Some Chapter 13 trustees offer the course, but you can also take it online or by telephone from the same agency you used for the credit counseling session. The court won’t issue your discharge (the order forgiving debt) until you’ve filed the course certificate.
- Confirming the plan. A few months after filing your case, the court will schedule a hearing to consider plan confirmation (approval). The plan must meet criteria, such as providing for payment of past due child support, alimony, income taxes, and other “priority” debts (debts that must be paid first). You must also pay arrearages to secured creditors like home mortgages and car loans if you intend to keep the home or car. Finally, you must bring in sufficient income to cover the plan payment and your reasonable and necessary expenses.
- Resolving claims. Creditors must file claim forms requesting payment with the court. The trustee and your attorney will review the claims to make sure that they’re correct and well documented. They might file objections to some claims, and, if necessary, your plan payments could be adjusted to account for a change in claim amounts.
- Checking in with the trustee. During the three- to five-year plan, a trustee will likely ask that you provide copies of your tax returns. If you filed a Chapter 13 case to save your house from foreclosure, about halfway through the plan many trustees will ask the mortgage company to confirm that your mortgage is up to date and that they’ve received all the payments issued by the trustee.
- Preparing for discharge. A few months before the end of the case, the trustee will ask you to file a certification that your mortgage payments are current, that you’ve filed all tax returns, and that your domestic support obligations, like child support and alimony, are current.
Receiving the Discharge
After you’ve made all your payments, filed your certifications, and taken your financial management course, the court will issue your discharge wiping out any remaining balance on qualifying debt.
Once you’ve successfully negotiated your way through the Chapter 13 bankruptcy timeline, you’ll be current on your mortgage, car loan, taxes, child support, and alimony, and will be free of most other debt.
(Find out what happens next by reading Life After Bankruptcy.)