Chapter 13 Bankruptcy Basics: Part Two
Meeting of Creditors
Anywhere from three weeks to fifty days after you file your Chapter 13 bankruptcy paperwork, a meeting of creditors will be held. Seven days before the meeting you will be required to give the trustee copies of your federal income tax return for the previous tax year. If you were not required to file taxes, you will provide a statement saying so.
It is unlikely any of your creditors will attend the meeting. Bankruptcy judges are not allowed to attend the meeting of creditors. Thus, the meeting of creditors is often simply the debtor and the trustee.
At the meeting, you must bring a government-issued picture identification (or other identifying documents), proof of your social security number, paperwork proving your current income, as well as bank and investment account statements. You also provide any documentation of your monthly income. If you don’t have any documentation of your monthly income, then you must bring statement to that effect.
The trustee will ask routine questions about information that you’ve provided as part of the bankruptcy process. The trustee needs to gain an understanding of your case and make a decision about whether to object to any of the claims brought by your creditors.
You can also dispute (or object) to any of the claims made by your creditors. If there are objections, these issues are then decided by the bankruptcy judge. This is why the judge doesn’t attend the meeting of creditors. Sometimes the judge will decide on objections to claims at the hearing set up to confirm or deny your payment plan.
Filing a Claim for One of Your Creditors
If one of your creditors does not file a claim, you can choose to file a claim on behalf of that person or company. For example, if you owe child support and your ex-spouse does not file a claim, you can file a claim to ensure the ex-spouse gets paid during the payment plan period. Why would you choose to do this? Since unpaid child support cannot be discharged by the court, you would end up having unpaid debts after the repayment period if the claim were not included. In another example, if you own a car that has an outstanding loan balance and the loan company doesn’t file a claim, you might choose to file the claim to ensure that the trustee makes payments to the company so that your car loan does not become delinquent.
The Chapter 13 Bankruptcy Confirmation Hearing
The next step in the process is your confirmation hearing. At a minimum, the court must give at least 28 days’ notice of the hearing of to everyone involved in your bankruptcy case. In some courts, the confirmation hearing will happen on the same day as the meeting of creditors. In other cases, the confirmation hearing will occur within the next 45 days, depending on the circumstances and the practices of the particular court where your hearing is held.
The hearing provides the court with an opportunity to listen to any objections to your plan from your creditors or from the trustee. The court will also use the hearing to decide if the plan you’ve proposed is feasible. Sometimes there will be disputes as to the value of your property and these will be brought up at the hearing as well.
As bankruptcy attorneys, our goal is to resolve any disputes prior to the confirmation hearing. Because we have decades of experience handling bankruptcy cases in Arizona, we can anticipate areas of concern in your case and address them ahead of time.
Confirmation of your plan may or may not happen at the hearing. Much of that depends on your case and the schedule of the court that handles it. If there are issues that need to be settled after the hearing, then the judge may schedule another hearing. If, for some reason, your plan is not confirmed by the court, you will normally have the opportunity to modify the plan.
Confirmation by the court creates a legally binding agreement between you and your creditors. You and your creditors must abide by the terms of the plan. Once your plan is confirmed, the trustee in your case will begin making payments to your creditors. Once you complete the plan successfully, you will receive a discharge.
Modifying Your Chapter 13 Plan
During the course of your three to five year Chapter 13 payment period, it is not unusual to need to modify your plan due to an emergency, a change in income, or other circumstances. If you need to make changes in your plan before the plan is finalized and confirmed by the court, then you propose the changes to the trustee.
If you need to change the plan after it is confirmed, your creditors can not object unless your proposed changes will impact them. The modified plan must meet all of the requirements of a Chapter 13 bankruptcy.
If you need to incur a debt or need credit during the plan period this may be possible as long as you receive permission from the trustee. Under most circumstances, you pay for it outside of the plan; however, each case can present unique circumstances. Options and details must be worked out with the trustee.
If your income changes during the plan period, a creditor can ask the court to modify your plan. This will happen most often if your income increases and you are able to make larger payments than your original plan proposed. If this occurs, it would be important to work with us to object to the modification. Objecting to the modification will help to ensure that the court holds a hearing where we can represent your interests to the judge.
What if You are Unable to Complete Your Chapter 13 Plan?
There are times when job loss or some other unavoidable circumstances will mean you cannot complete your Chapter 13 plan. You may not feel there are any options when that happens, but in working closely with us, as your attorneys, we can help you choose the best option when you are faced with these difficulties.
The bankruptcy laws allow for four possible choices when you cannot complete your Chapter 13 plan. They are dismissal, conversion to a Chapter 7 bankruptcy, modifying the plan, or requesting a hardship discharge. Let’s start with the hardship discharge, as often this is the most desirable outcome when you cannot complete the plan.
The hardship discharge is an option when there are circumstances beyond your control. Bankruptcy laws refer to these as circumstances for which you are not “justly accountable.” The hardship discharge may be requested any time after your plan is finalized by the court. One requirement for the court to grant the hardship discharge, however, is that your unsecured creditors (such as credit companies, doctors, or hospitals) must have already been paid as much as they would have been paid if you had filed a Chapter 7 bankruptcy. So the hardship discharge may depend on how long you have been paying into the plan. The hardship discharge will only be granted if modification is not possible.
Modifying the Plan
It is possible to modify your plan to deal with unexpected circumstances that come up during the three to five year payment period in your Chapter 13 bankruptcy.
Conversion to Chapter 7
You always have the right to convert your Chapter 13 to a Chapter 7 bankruptcy. You do not have to show hardship to convert to Chapter 7. When you convert, you must submit some new paperwork (schedules) and you must also submit a statement indicating what you plan to do with property that was used to secure a loan.
In some circumstances, dismissing your Chapter 13 bankruptcy may be the best choice. Just as you always have the right to convert to Chapter 7 bankruptcy, you may request a dismissal unless the Chapter 13 was converted from another bankruptcy Chapter. When you request a dismissal, it is referred to as a voluntary dismissal. It is possible for the court to order a dismissal of your bankruptcy as well. This would be an involuntary dismissal.
The Chapter 13 Bankruptcy Discharge
When you have successfully completed your Chapter 13 plan, you receive what is referred to as a discharge. This means that all of the debt you included in your Chapter 13 filing has been legally paid. After the discharge, creditors who were part of the process are not allowed to come after you to collect any additional payments.
In order to receive a discharge, you must meet certain requirements. If you are required to pay child support or spousal support, you must tell the court that you have kept up-to-date on all of your support payment. This is referred to as “certifying” to the court. If you missed any child or spousal support payments before you filed for bankruptcy, you must certify that you paid any past due amounts that were built into the payment plan.
You also must show the court that you have completed a financial management course offered by an agency approved by the court. As your attorneys, we will provide you with a list of approved agencies. The course must be taken before your last payment is made under the plan or you file for a hardship discharge. You can choose to take the course earlier in your Chapter 13 plan, as this may help you in your managing your finances during your payment period.
When you have satisfied all of the requirements of Chapter 13, the discharge is final. In a Chapter 13 bankruptcy, the discharge can only be revoked by the court if you were deliberately deceitful—that is, you committed fraud.
If someone claims to the court that you committed fraud, they are required to show that they discovered your fraud after the discharge was granted by the court. The person who discovers the fraud must formally object to your discharge within one year of the date your discharge was granted to bring the issue to the court.
Reaffirming Debt in Chapter 13 Bankruptcy
Sometimes individuals will want to negotiate with a lender to reaffirm a debt. Reaffirming a debt with the lender means that after the bankruptcy you will still be legally responsible for paying back that debt. If you choose to do this without being represented by a lawyer, the court is required to hold a discharge hearing. The court can make a decision to discharge that debt, even if you want to reaffirm the debt. This happens when the documentation you submit for reaffirming the debt raises concerns that there are problems with the reaffirmation.
The reaffirmation of a debt cannot cause undue hardship for you or your family. Some creditors will push you to reaffirm your debt with them. Because there is concern about banks and creditors coercing individuals in bankruptcy to reaffirm their debts, the bankruptcy laws require that you get an in-depth explanation either at the hearing or from your attorney before the court will approve the request to reaffirm the debt. This is why the discharge hearing is required when you choose to reaffirm any debts.
If your debt is secured by property, the court must approve the reaffirmation of the debt in order for it to be valid. If you are represented by an attorney in negotiating the reaffirmation, your attorney will file a written document with the court stating the agreement you made with the creditor was not coerced and you were fully informed. Even in these cases, the reaffirmation must still be approved by court.
There have been cases where an individual wants to reaffirm a debt and there is not enough money in the person’s budget to make the payments. Even if you negotiated the reaffirmation with an attorney representing you, the court assumes that this will cause undue hardship to you and your family. In this case, the court will most likely deny the reaffirmation.
What Debts are Not Discharged in Chapter 13 Bankruptcy?
Under Chapter 13 bankruptcy, you are able to discharge more debts than you would under Chapter 7. But there are still debts that are not discharged at the end of your payment period. One of the most common debts that is not discharged is a long-term loan, such as a home mortgage. One characteristic of a long-term debt is that your final payment for the loan is due after you complete the plan.
Certain tax debts are not discharged in your Chapter 13 bankruptcy. If you incurred debts under false pretenses, these debts will not be discharged. If you failed to list any debts when you filed for bankruptcy, and the creditor did not know this, you may still be legally responsible for that debt. Child support and spousal support payments are not discharged in a Chapter 13 bankruptcy.
Most student loan debts are also not dischargeable under Chapter 13bankruptcy. If you owe money because of a DUI, or owe restitution or need to pay fines because of a criminal sentence, these cannot be discharged. If you must pay restitution or damages from a civil lawsuit involving willful or malicious injury or death, these debts will not be discharged in Chapter 13 bankruptcy.
After the Discharge
Once you receive the discharge from the court, a notice is sent to the trustee and all of your creditors. You will receive a copy of this notice of this as well. Notice of your discharge completes activity in your case, although it may not be officially closed until a later date.
The Chapter 13 bankruptcy process is one that will last three to five years. You might be tempted to represent yourself in the bankruptcy process in order to avoid attorney’s fees. Because your circumstances can change over that time period, having legal representation could be important to ensure that you make the best decisions throughout your payment plan period. Before you make the decision to represent yourself, we encourage you to set up a free consultation with one of our experienced Tucson bankruptcy attorneys.
The process of Arizona bankruptcy can be difficult and unique for each situation. If you are looking into filing for bankruptcy, it is in your best interest to consult with a competent Tucson bankruptcy attorney before taking any action. I am one of Tucson’s most prolific filers of bankruptcy petitions. That didn’t just happen by luck. My staff and I work hard to make sure our clients have a superior experience with our firm.
Whether it is protecting as much of your property as you are legally allowed to or choosing whether Chapter 7 or Chapter 13 is your best course of action, we can ensure that you make the right choice in your bankruptcy case. If you are considering filing for bankruptcy in Arizona, contact us for a free consultation to find out how we can help.