chapter 13

The Minnesota Guide to Chapter 13 Bankruptcy: Part 4—The Process

Part 1—Chapter 13 Basics
Part 2—Benefits of Chapter 13
Part 3—How Your Plan Payment is Calculated

HOW DO I GET STARTED?

The Chapter 13 process starts when you hire a lawyer. We offer consultations by phone or video for your convenience. Once you decide it’s time to move forward, we’ll send you a services agreement to review and sign electronically. We also accept electronic payments. Our online questionnaire is easy to use and can be completed at your convenience.

What Does Chapter 13 cost?

In Chapter 13, you pay a flat fee out-of-pocket. When you're in financial trouble, you want predictability. You don't want your lawyer to run up the bill on you. That's why we quote you a flat fee at the beginning of the process, and that's what you pay. We agree on it at the start so you can plan for the expense.

Unlike Chapter 7, you don't need to pay your whole fee upfront in Chapter 13. In fact, in many cases Chapter 13 costs less up front than Chapter 7. We generally require a minimum of $1,000 before filing in a Chapter 13, but this can depend on your case.

What happens after you file your case?

As soon as the case is filed with the court, your bankruptcy protection begins. No creditors can call, write, or sue you, and any pending foreclosures, repossessions, or garnishments must stop immediately. After that, you’ll get a date for your bankruptcy meeting of creditors.

What is the meeting of creditors?

A meeting of creditors is a short interview that happens in person, or by phone/video. The bankruptcy trustee will go over your assets, debts, income, and expenses with you, and make sure you’re paying an appropriate amount to your creditors. Once we get the trustee and your creditors to agree to the plan, your case will be on track to get confirmed.

What happens after the plan is confirmed?

Once your case is confirmed, there’s not usually much to do in your case other than make your plan payments. We’ll generally check in every year around tax time, and you’ll have to let your lawyer know if you are having trouble making your payments so you can get some help. Because of your bankruptcy protection, your creditors will be breaking the law if they contact you after you file Chapter 13, so you should let your bankruptcy lawyer know right away if a collector is calling. We can put a stop to the calls and may even be able to get them to pay you for breaking the law.

Part 1—Chapter 13 Basics
Part 2—Benefits of Chapter 13
Part 3—How Your Plan Payment is Calculated

The Minnesota Guide to Chapter 13 Bankruptcy: Part 3—How Your Plan Payment is Calculated

Part 1—Chapter 13 Basics
Part 2—Benefits of Chapter 13
Part 4—The Chapter 13 Process

Chapter 13 involves paying your disposable income to creditors over a three or five-year period. Whatever isn't paid during that period is wiped out. But to figure out whether Chapter 13 is a good option, you need to know exactly how much your monthly payment will be. Here’s how we figure that out.

First, We predict your future income

To figure out your Chapter 13 payment, we need to predict your future income. We start by averaging out your income over the past six months. This amount can then be adjusted to account for changing circumstances, for example if you have just taken a pay cut or you know you won't be receiving the same amount of overtime.

Next, we predict your future expenses

Next, we figure out your expenses. We look at all the expenses that are necessary to take care of your family's needs: food, rent/mortgage, car payment, utilities, etc. We also look at things that you know you’ll be spending, like car repairs, home maintenance or dental work. Then we look at things you should be spending on, but haven't because you've been in financial trouble. This can include health insurance and other medical expenses, sometimes a 401(k) or life insurance, etc. If there's something that's not on our list of ordinary expenses, that doesn't mean we can't deduct it, as long as we can explain why it’s reasonable and necessary.

Once we count all these expenses, we subtract them from income and we get an idea of your disposable income.

Your attorney will help maximize your expenses

As your attorney, it’s our job is to protect the money that’s necessary for you to take care of yourself and your family. So we ask for two things: 1) verification of your expenses, so we can prove that you actually need to spend that money; and 2) information on why your expenses are reasonable and necessary.

For example, one client had an $800 monthly bill for auto fuel. This may seem unreasonably high, until we realized that the client lives 60 miles from where he works. If we can explain to the court why an expense is reasonable, there is a better chance it will be allowed.

THe payment has to be enough to cover required debts

Chapter 13 payments must be large enough to pay certain required debts. For example, if you are trying to get current on a mortgage, your total plan payments must cover the amount of your mortgage arrears. Plan payments also must cover any secured debt (car loans) that end within the plan period. Also, plan payments must cover any priority debt, such as some tax debt or government penalties within the plan period. If the total plan payments are enough to pay all of these required debts over the plan period, then your plan can be approved.

The payment has to treat your creditors fairly

If you have non-exempt property that you’re looking to protect in a Chapter 13, your Chapter 13 payments must be at least the value of your nonexempt property. In other words, in Chapter 13 your unsecured creditors can't receive any less in the plan than they would have received in Chapter 7 if your nonexempt property was liquidated.

Part 1—Chapter 13 Basics
Part 2—Benefits of Chapter 13
Part 4—The Chapter 13 Process

 

The Minnesota Guide to Chapter 13 Bankruptcy: Part 2—Benefits of Chapter 13

Part 1—Chapter 13 Basics
Part 3—How Your Plan Payment is Calculated
Part 4—The Chapter 13 Process

There are many benefits of Chapter 13 bankruptcy versus a Chapter 7. A few of them are obvious, but some are a little more hidden. Here are a few:

You get to keep your stuff

In Chapter 13, you don’t have to worry about losing your car to pay your creditors. Instead of giving up your stuff, Chapter 13 allows you to keep everything as long as you’re paying enough to your creditors.

You can stop foreclosure permanently

Both Chapter 7 and 13 bankruptcy allow you to pause the foreclosure process. In Chapter 7, however, once the bankruptcy is done the mortgage company can go right back to foreclosing. In Chapter 13, you can take mortgage arrears and spread them out over a three to five year period. As long as you can pay your mortgage arrears back over this time, you can stop the foreclosure permanently.

You can deal with tax debt, mortgage debt, and domestic support in flexible ways

Chapter 13 helps people deal with delinquent tax debt, mortgage debt, and past-due child support or alimony by allowing the filer to pay the debt over a longer period of time and get out of default immediately. Once the Chapter 13 is over, those debts will be paid in full.

It hurts your credit score less

Chapter 13 bankruptcy stays on your credit report for seven years, rather than the ten years a Chapter 7 stays on your record. Also, Chapter 13 has less negative impact while it’s on your credit report, because you’re paying part of your debt back instead of wiping it all out.

Attorney fees are more flexible

In Chapter 7, you’ll need to pay the entire attorney fee up front before filing. In Chapter 13, the majority of your attorney fee is taken out of your monthly payment. This means in a lot of cases, you pay very little before filing and the rest of your attorney fees is come out of your creditors’ pockets.

Part 1—Chapter 13 Basics
Part 3—Stopping foreclosure in Chapter 13
Part 4—The Chapter 13 Process

 

The Minnesota Guide to Chapter 13 Bankruptcy: Part 1—Chapter 13 Basics

Part 2—Benefits of Chapter 13
Part 3—How Your Plan Payment is Calculated
Part 4—The Chapter 13 Process

What is Chapter 13 bankruptcy?

Chapter 13 is a form of bankruptcy that is more flexible than traditional bankruptcy. We use it to protect assets, stop foreclosure, manage credit cards, deal with difficult tax debts, or restructure car loans. Because of its flexibility, Chapter 13 is a great tool in more complex cases.

How Chapter 13 Works

Chapter 13 bankruptcy is a monthly payment plan that pays only the portion of your debts that you can afford, with zero interest. Whatever isn’t paid by the end of the Chapter 13 plan is usually wiped out forever.

To determine your monthly payment amount, we figure out your “disposable income.” This is basically your take-home pay minus your living expenses. In many cases, your disposable income is close to what your monthly Chapter 13 payment will be. This amount is then paid to your creditors over a three-to-five-year period. Any remaining debt is wiped out at the end of the bankruptcy.

When should I consider Chapter 13?

Part 2—Benefits of Chapter 13
Part 3—How Your Plan Payment is Calculated
Part 4—The Chapter 13 Process