BANKRUPTCY

    Chapter 13 of the Bankruptcy Code gives the debtor the opportunity to adjust his or her financial affairs without having to liquidate current assets. Rather than being required to pay back debts using assets, a chapter 13 case usually involves payment of debts out of future income (although the debtor may also decide on some payment of debts out of current assets). The debtor is allowed to keep and use all property, whether exempt or not, and to pay some or all debts according to a plan approved by the U.S. Bankruptcy court. At the completion of this plan (or, in some cases, earlier) the debtor receives a discharge which, with several significant exceptions, is similar to the discharge received in a chapter 7 case.

    Chapter 13 is most frequently chosen by debtors who must  use its provisions to deal with mortgage arrearages or other secured debts, and by debtors who have nonexempt property that they want to retain. However, there are a host of other reasons for choosing Chapter 13 over Chapter 7, including simply the desire to repay some or all debts. The basic purposes of Chapter 13, like those of Chapter 7, are to provide a fresh financial start to the debtor and to distribute payments equitably to the debtor’s creditors.

    You have recently filed a bankruptcy case under Chapter 13 of the United States Bankruptcy Code. The purpose of this brochure is to explain to you what a Chapter 13 case is, what the Chapter 13 Trustee does, and what your responsibilities are as a Chapter 13 debtor'. Acquainting yourself with the contents of this brochure will help you understand the Chapter 13 process and will increase your chances for success.

     You and your attorney should have already discussed your various bankruptcy options before you chose to file a Chapter 13 case. You may have chosen to file a Chapter 13, rather than a Chapter 7 liquidation for several reasons:

• You may have fallen behind on your payments on a secured debt such as a house or car loan, and you want to keep the asset that is the collateral on the debt;
• You may have assets that you own "free and clear," and you want to keep these assets rather than have them sold to pay creditors;
• You may have debts such as certain kinds of taxes and child support/alimony obligations, which cannot be discharged in a Chapter 7 case but may be paid over time in a Chapter 13 case;
• Your have enough income that the Bankruptcy Court might consider it to be unfair for you to not repay at least a portion of your debts;
• You want to repay at least a portion of your debts over time; or
• You may have already completed a Chapter 7 case and received a discharge, and as a result you may be ineligible to file another Chapter 7 case for a specific period of time.

      As soon as you filed your bankruptcy, an automatic stay was imposed on all of your creditors. This automatic stay prevents creditors from taking certain actions against you to collect the money you owe them. Because of the automatic stay, creditors may not call you; wage garnishments (except for child support and alimony) must stop; foreclosure proceedings must stop; and attempts to repossess property must stop. If your creditors do not stop these actions, contact your attorney immediately.

     Your ultimate goal in any bankruptcy should be to receive a discharge. A discharge is an order issued by the Bankruptcy Court stating that you have completed your obligations as a Chapter 13 debtor, and that 'certain debt you incurred before you filed your bankruptcy are forgiven. Once you receive a discharge, the individuals or companies to whom you owed money may not attempt to collect those debts from you again (except in certain circumstances. such as student loans and certain kinds of taxes. which will be discussed later).

      The Chapter 13 Trustee is the person who administers your Chapter 13 plan. The Chapter 13 Trustee has several responsibilities. He will review your proposed plan to make sure it complies with the bankruptcy laws; examine you at the meeting of creditors; make sure your case is in order so he can recommend to the Bankruptcy Court. that your Chapter 13 plan be approved; and collect your plan payments and then make distributions to your creditors according to the terms of your plan as approved by the Bankruptcy Court. The Trustee will provide you with periodic reports of plan payments and distributions, and report to the Court when your plan is completed so that a discharge may be issued.

     The Trustee is also responsible for making sure that you comply with your plan after the Court approves it. If you fall behind on your payments, the Trustee will likely be the person asking the Court to dismiss your case. The Trustee's responsibilities do not include reminding you of your payment obligations to the Trustee, making sure you are up to date on your: house payments, or negotiating with creditors on your behalf. If a creditor contacts you, if one of your assets is repossessed or foreclosed upon, or if your mortgage company reports that you have fallen behind on payments, contact your attorney, not the Trustee.

     The Trustee's office does not provide information to credit bureaus and will not become involved in any disputes you may have with credit bureaus.

    When you filed your Chapter 13 petition, you were required to file a Chapter 13 plan. Simply put, this plan states how much you are to pay to the Chapter 13 Trustee, and to whom the Chapter 13 Trustee is to pay. Creditors that have claims based upon certain kinds of debts must be specifically named In your plan. These debts include mortgages, taxes, child support and/or alimony debts, and debts that are secured by personal property, such as a car or furniture. If you are behind on your mortgage payments, your plan may provide for you to make up the delinquent payments while you make the current payments yourself directly to the mortgage company. Even if you are not behind on your mortgage payments at the time you file your petition, you must still identify your mortgage creditor or creditors in your Chapter 13 plan.

    Debts on which there is no collateral are sometimes called unsecured debts. These would include (but are not limited to) such debts as credit cards, medical bills, and utilities. These creditors are not listed by name in your plan, but instead are grouped together as unsecured creditors. They are paid a percentage of the amount of their claim. If you are unsure if a debt is secured or unsecured, ask yourself this question: If I don't pay this debt, is there something the creditor can take away or repossess? If the answer is yes," the debt is probably a secured debt, and the creditor and the amount of the debt will have to be specifically mentioned in your Chapter 13 plan.

    In most circumstances, all unsecured creditors must be treated equally. There is no provision in the Bankruptcy Code allowing you to favor one creditor of the same type over another, nor is there any provision in the Bankruptcy Code allowing you to omit a creditor from your bankruptcy schedules, no matter how much or how little you owe that creditor. In order to ensure complete compliance with the Bankruptcy Code, you must tell your attorney about all of your debts. The decision as to which debts are to be paid though your Chapter 13 plan is not yours to make; in most cases, it is determined by the bankruptcy law.

    If you owe money to a family member, you must treat this debt exactly as you treat your other debts. It is unfair for you to pay a family member back in full while other creditors only get a portion of the money you owe them. If you owe someone in your family money, you must inform your lawyer. If it is discovered later that you owe money to a family member and did not tell the Court, you risk having your bankruptcy case dismissed.

    Your Chapter 13 plan requires you to make regular payments to the Chapter 13 Trustee. If you are employed, the Bankruptcy Court will order your employer to withhold funds from your pay and to send deposits in the same amounts to the Chapter 13 Trustee. If you are self-employed, or if your income, is from a source 'such as a pension or Social Security, you will be required to send the money yourself to the Trustee on a monthly basis.

    Under bankruptcy law you are required to pay 100% of your debts or else pay all of your disposable income to your creditors. Disposable income is determined by subtracting your reasonably necessary expenses from your income. Luxury items are generally not considered reasonable and necessary expenses and are therefore not permitted. You must budget your expenses carefully and stick to this budget as closely as possible.

    You should receive from your lawyer a copy of the wage order, which is the Court order requiring either you or your employer to make payments to the Trustee. This order includes your case number, the amount and frequency of your required payments, and the name and payment address of the Trustee.

    The Trustee does not accept cash nor does the Trustee have a place where you can make payments in person. Payments must be mailed to the Trustee’s P.O. Box shown on the inside cover of this booklet. The Trustee accepts' personal checks. However, if you bounce a check, the Trustee will no longer accept your personal checks.

    The Bankruptcy Code requires that payments to the Trustee start no later than 30 days after filing your Chapter 13 plan. If your employer is supposed to take money out of your pay and send it to the Trustee but does not do so, it is your responsibility to make the plan payment to the Trustee and to contact your attorney about your employer's handling of your wages. You cannot sit back and wait for your employer to start making payments. It is your responsibility to make sure plan payments are made.

 
   The Trustee does not send monthly statements, coupon books, or reminders. Failure to make payments to the Trustee is grounds for the dismissal of your Chapter 13 case. If your case is dismissed, then you will not get a discharge, your debts will not be forgiven, and your creditors will be permitted to resume collecting the money you owe them.

    You should tell your attorney immediately if you change jobs. Your attorney will file the paperwork with the Court so your new employer will begin withholding your plan payments from your paychecks. Letting your attorney know about your new job immediately will help ensure that an interruption in payments does not occur. By making sure payments are not interrupted, you may prevent your case from being dismissed due to a deficiency in funding your plan.

    Included in your payment to the Trustee is a fee for administering your case. This fee is a percentage of the money the Trustee pays to your creditors. By Jaw, this fee can be no more than 10%. For example: if you pay $100 to the Trustee, the Trustee may keep up to $10 as an administration fee, leaving $90 available for your creditors. This is not a separate fee you have to pay; it is already included in the money you pay to the Trustee.

    Approximately six weeks after your Chapter 13 plan and schedules are filed, you will be required to attend the meeting of creditors. If the case is a joint filing by a wife and a husband, both debtors must attend. Your attorney is required to appear with you. The meeting of creditors gives your creditors and the Trustee an opportunity to talk to you about your finances and your plan for repaying creditors.

    You will receive a notice in the mail detailing the time and location of your meeting of creditors. This examination is recorded and conducted under oath. You are required to answer each question accurately and truthfully, to the best of your ability. Your failure to appear at this meeting may result in the dismissal of your case. If circumstances will prevent you from attending this meeting, contact your attorney immediately. Work or family commitments are usually not satisfactory excuses for missing your scheduled meeting time.

   You will be required to bring the following items to the meeting of creditors:

• A valid, unexpired photo ID (drivers license, state ID, etc.). If you are using employment identification that employer must still employ you; and
• Proof of your social security number (if it is not on your driver’s license or state ID).

     If you do not bring these items to the meeting of creditors, the Trustee will not conduct the meeting.

    Prior to the meeting of creditors your attorney should have already provided the Trustee's office with the following items:

• Two recent pay stubs;
• Your federal tax return for the most recent calendar year;
• If you own a motor vehicle, a copy of the title to the vehicle. If you are leasing, a copy of the vehicle lease; and
• Proof that all vehicles are currently insured.

    In addition, the Trustee may require additional items be provided such as savings account statements or business information. Failure to timely provide these items may prevent the Trustee from conducting a proper analysis of your proposed plan and' financial situation, and may result in the Trustee asking the Bankruptcy Court to dismiss your Chapter 13 case.

    In most cases, jf you have a mortgage you will be responsible for making the regular monthly mortgage payments directly to the mortgage company during your bankruptcy case. Only the payments you missed before you filed bankruptcy will be included in your Chapter 13 plan and paid over the term of the plan. Your mortgage payment due date will almost certainly be the same as it was before you filed bankruptcy.

 
    Plan on making your mortgage payments for the month after you filed bankruptcy. For example" if your case was filed in March, you should plan on making the April payment no matter when in the month it is due. If the mortgage lender has stopped accepting your payments, you or your lawyer may have to call your mortgage lender to arrange for the lender to start accepting payments.

    You cannot sit back and wait for your lender to contact you about starting your payments. Keep track of all of your cancelled checks, money order receipts, etc. so that, if necessary, you can prove that you have properly made your mortgage payments.

    The Bankruptcy Code and the court order approving your Chapter 13 plan combine to prohibit you from borrowing more than $500 (or transferring an interest in real estate) without the permission of the Bankruptcy Court. To obtain permission from the Bankruptcy Court, your attorney must file the necessary documents with the court.

    This $500 limit is cumulative. For example, if you have already borrowed $200, then you may borrow only $300 without the permission of the Bankruptcy Court. Remember, it is the permission of the Bankruptcy Court not the Chapter 13 Trustee that is required. In most cases, this will require the filing of a motion with the court, a hearing with a judge, and the signature of a judge upon a court order before you may borrow money. If you must borrow money, contact your attorney before signing any loan papers. Be warned: some lenders attempt to take advantage of bankruptcy debtors by charging very high interest rates and/or closing costs or other fees.

Actions that require the permission or approval of the Court include:

• Selling your house;
• Refinancing your mortgage, even if you gel no money from the transaction;
• Borrowing money using your house as collateral;
• Financing home improvements;
• Financing the purchase or lease of a car;
• Borrowing money from your employer or from a credit union;
• Borrowing money against, a 401 (k) plan;
• Borrowing money from family or friends;
• CO-signing a loan for anyone;.
• Taking out a student loan;
• Using a credit card;
• Using a. payroll advance service such as CheckSmart or Check Into Cash;
• Leasing, renting, or purchasing on time or on payments any furniture, jewelry, audio/video equipment, or appliances.

     Student loans are generally unsecured debts, and they are not treated any differently from other unsecured creditors during the term of your plan, but Congress has passed laws that affect the balance of the student loan debt that is not paid during your plan.

    Unlike other unsecured debt that is unpaid in a plan with less than 100% repayment, the remainder of the student loan debt is usually not forgiven when the discharge is granted upon completion of your plan. This means that you will be responsible for any part of your student loan that is not paid through the Chapter 13 plan. For example, jf your plan calls for a payment of 75% of the amount owed to your unsecured creditors, your student loan will also be paid 75% through the Chapter 13 plan. When your Chapter 13 plan is over, you will still be responsible for the 25% of your student loan that was not paid through your Chapter 13 plan, plus accrued interest.

   Probably not. Some Bankruptcy Courts have decided that it is unfair for you to save money for your retirement if you are not paying your creditors back in full. Only if your retirement contributions are mandatory, such as with PERS or other government retirement plans, will you be allowed to make contributions to your retirement plan.

    There are certain exceptions to this rule; your attorney can advise you if you meet any of these exceptions. Similarly, some Bankruptcy Courts have ruled that if you repay a- loan against a retirement plan, you are essentially repaying a loan to yourself, and that it is unfair for you to repay a loan to yourself in full while you are not making full payments to your creditors.

    This may have tax implications for you. Before you decide to file a Chapter 13 case you should talk to your attorney about the tax implications of not repaying a loan from your retirement account.

    You will have to file all delinquent tax returns before the Court will approve your Chapter 13 plan. If you have not filed a tax return for several years, or if you have a tax return for a particular year that has not been filed, you should inform your lawyer. The IRS is authorized to estimate how much you owe if you have not filed a tax return for a particular year. In almost all cases, the IRS estimate is considerably higher than the amount you would owe if you had filed the return, so you may save money over the long run by filing your delinquent tax returns. In addition, you may stop certain penalties from accruing when you file delinquent tax returns.

    Even if all your returns have been filed, you should be prepared to turn over your tax returns for at least the last two years to your lawyer so that the returns can be delivered to the Trustee. During the term of your Chapter 13 case, you are responsible for continuing to file your tax returns and to pay taxes in a timely manner. If you fail to file returns and/or pay your taxes, the IRS and other governmental agencies may file claims in your Chapter 13 case, which would disrupt the payments to your other creditors, make your plan run longer than you planned, and may prompt the Trustee or one of your creditors to file a motion to dismiss your case.

    Approximately 120 days after the meeting of creditors, the Trustee will send you a Notice of Intention to Pay Claims. This notice lists each creditor that is either listed on your schedules or has filed a claim, the amount of the claim, and whether the claim is priority, secured or unsecured. You should review this notice carefully and contact your attorney if you have any questions or concerns.

    At least once a year the Trustee will send you a statement of the progress of your Chapter 13 case. This statement will detail the creditors who have filed claims in your case (and the amount and status of each claim), the amount of money you have paid to the Trustee, the amount of money the Trustee has paid to each creditor, the balance remaining on each claim, and the approximate balance remaining for all the claims in your case.

    Please keep in mind that the Trustee pays claims in the amount filed by the creditor, even if that amount differs from the amount you believe you owe that creditor or the amount that you specified for that creditor in your Chapter 13 plan, unless you object to that claim with" the Bankruptcy Court. You should review the statements very carefully" If you notice a claim that you believe does not belong in your case or a claim in an amount greatly in excess" of what you believe you owe that creditor, contact your attorney immediately.

    If a claim is filed in an amount in excess of the amount you believe you owe that creditor, completing your plan in a five-year period may prove to be impossible, and your case may be dismissed without your receiving a discharge because you could not complete the plan in a timely manner.

     If your plan requires you to repay your creditors 100%, paying the Trustee more than the amount your plan requires may decrease the length of time it takes to complete your plan. Paying extra may cause your payroll deductions to stop sooner. If you wish to increase your plan payments, contact your attorney. If you wish to make an extra payment, you may do so by sending a money order, personal check, or cashier's check to the Trustee's payment address.

    It depends on a number of factors. There are a wide variety of variables that the Trustee must consider before accepting money intended to payoff a Chapter 13 case early. You should consult with your attorney if you are considering paying oft your Chapter 13 case. The Trustee will not automatically accept funds intended to payoff your case early.

    When you make your last payment to the Trustee, the Trustee will start the process of closing your case and asking the Bankruptcy Court to issue your discharge. Upon receipt of your last payment, the Trustee will make sure all claims have been paid and will ask the Bankruptcy Court to release your employer from the order that required the withholding of funds from your pay.

    Once the Trustee is satisfied that your plan has been completed and that all relevant provisions of the Bankruptcy Code have been complied with, your case will be closed and the final report will be issued. Once the Trustee asks the Court to issue your discharge, it is the Bankruptcy Court, not the Trustee, who will issue your discharge.

    It may take up to 120 days from the time your final payment is received by the Trustee until the court issues the discharge. If you have paid money to the Trustee in excess of the amount needed to complete your plan, the excess money will be refunded to you after your case is closed.