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Chapter 13

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Chapter 13 (Reorganization)

If a debtor qualifies for a Chapter 7 bankruptcy, the debtor discloses to the Court and Trustee all of his or her property. In a typical case, most of that property is exempt, either by Federal or Texas law, meaning that no one can take it from the debtor. If a debtor has non-exempt property, the Trustee can sell it and use the funds to pay off some of the debtor's unsecured debt. The remaining unsecured debts are discharged. If a Debtor has secured debt, the debtor can either be current and reaffirm the debt, redeem the property that secures the debt, or surrender the property and have the underlying debt discharged.

Prefiling

Determining the best course of action in a bankruptcy case is imperative. There are many pitfalls and being as accurate as possible from the very beginning is the only  best chance at successfully completing your case. Filing a Chapter 13 to stave off a foreclosure or repossession is much more complicated than just filing the petition and notifying the creditor. Getting your schedules and your plan correctly prepared and filed is equally important. The Bankruptcy Code does not treat repeat filers kindly, so making sure you get it right the first time is best.

Petition, Schedules, and Statements

Filing bankruptcy is time-consuming and difficult. It is not for the faint-of-heart. It is not for those who enjoy their privacy. It is a very open and revealing process.  Technically bankruptcy records are public, but luckily, the only ones who really see what is filed in a bankruptcy case are those who need to know.

Typically required documents:

1. 6 months of bank statements for all accounts which the debtor has a right to withdraw funds from;

2. 6 months of pay stubs for all jobs had by each debtor filing;

3. Tax returns and supporting documents (W-2s, 1099s, etc.) for the last two years;

4. Credit reports for the 3 major bureaus (available every 12 months for free here);

5. Information for all other creditors not listed on your credit reports; and

6. A list of all of your assets and what they are worth.

Once you have gathered all of the required information, your attorney will begin to prepare the proper documents for filing. You can see the forms required in most typical Chapter 7 cases here.

Assets

Your attorney will often have a form for you to fill out to gather the information about your assets. The Tisdale Law Firm uses BKPacket to gather information about your assets. You will be provided an account and log in instructions with them once you have paid your fees with us.

Assets are anything you own: real estate, vehicles, furniture, clothing, linens, flatware, electronics, pets--the list is exhaustive and literally includes everything you own. When you are valuing your assets, it is literally the fair-market value of the property. It is not what you paid for it; it is not what it would cost to replace it. It is the amount, in cash, someone would give you for it if you sold it in a garage sale.

  Purchase Price Replacement Price Fair Market Value
Sofa $1,500.00 1,200.00 $200.00
65" Flat Screen $2,000.00 $600.00 $150.00
 
Exemptions

When filing bankruptcy, you are agreeing that in exchange for an order of discharge, the Trustee can seize your property and sell it to the highest bidder to help pay your creditors. Exemptions are what allow you to keep some (or all) of your property from being taken and sold. There are federal exemptions and state exemptions. Each state has the right to choose what property is protected or they can choose to allow residents to use the federal exemptions list or not. Some states, like Texas, have their own list and allow residents to choose which list they want to use. This allows some flexibility, but you cannot pick and choose from each list. It's all of one or all of the other. You can see the Texas exemptions here and the federal exemptions here.

When preparing to file your case, your attorney will determine which list of exemptions would be most beneficial. In very general terms, Texas exemptions are good for those with large amounts of equity in their homes and Federal exemptions are good for those with little or no equity, but large amounts of cash, or other goods that can use what is called the "wildcard" exemption. The wildcard exemption is an exemption of any property that wouldn't ordinarily be exempt by using what is left of the Federal homestead exemption.

Example: If a debtor has a home worth $250,000 but owes $245,000 on the mortgage secured by the home, and also has $5,000 in cash, it would be prudent to use the federal exemption list rather than Texas exemption. Under the Texas exemptions the home would be exempt, but the cash wouldn't be. Under the federal exemptions list, the home would be exempt ($5,000) as would the cash by using the remainder of the federal homestead exemption to exempt it.

Creditors

Simply put, a creditor is anyone you owe money to, whether it is a credit card company or uncle Bob, who loaned you $500 last year to rent that moving truck you needed, or your ex-wife, who you still owe child support. Every creditor, whether on your credit report or not, must be listed on your bankruptcy schedules. There are three types of creditors in a bankruptcy case: unsecured creditors (credit cards, medical bills, etc.); priority unsecured creditors (student loans, some back taxes, and debts owed to government agencies, etc.); and secured creditors (home mortgage, auto loan, any debt for which you pledged collateral). Each type of creditor is treated differently in a Chapter 13.

Means Test

Unlike a Chapter 7, the means test in a Chapter 13 will not prevent you from filing, it merely determines how much of your unsecured debt you will be required to pay. If your household income is below the median income of a household of the same size in your state, then you may only be required to pay your arrears. If your income is above the median income, then you may be required to pay 100% of your unsecured debts. You can find the median incomes used in bankruptcy cases for each state here.

Chapter 13 Plan

Unlike a Chapter 7, in a Chapter 13 the goal is to pay at least some of your debt during the bankruptcy. Whether it is just the arrears on your home mortgage, or the entirety of your debt, the Chapter 13 Plan is what outlines which creditors are to be paid, when they are to be paid, and how much they are to be paid. Once it is confirmed by the Court, it is binding on all creditors. Those debts that are listed in the schedules, but not paid in full in the plan, are discharged at the end of the case.

Chapter 13 Plans will typically either be 3 or 5 years in length, although they can sometimes be less than 3 years or somewhere in between 3 and 5 years, depending on what you are trying to accomplish.

341 Meeting of Creditors

Section 341(a) of the U.S. Bankruptcy Code requires the debtor to attend a meeting of creditors within 30-45 days of filing. It is rare that creditors appear at these meetings. Typically only the debtor, debtor's counsel, and the trustee appear. The trustee will ask a series of questions, a sample of which can be found below.

341 Meeting Questions
341 Meeting Questions

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Discharge

The goal of filing for bankruptcy protection under Chapter 13 is to complete the Chapter 13 Plan, paying back what debts you needed to, and obtain a discharge. The Discharge Order is an order of the Bankruptcy Court that releases the Debtor of any obligation to pay their debts, with some exceptions. Violation of the discharge order by a creditor can result in penalties, also known as sanctions, including fines and attorney's fees for the Debtor's counsel.

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