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Chapter 13 Bankruptcy Filing Process

Posted by attorney Alon Nager

Chapter 13 is only available to individuals with regular income who reside, are domiciled, or have a place of business or property in the United States. Businesses may not file under chapter 13. Within 180 days of filing, the debtor must complete an approved credit counseling briefing. There are limited exceptions to the credit- counseling requirement. If the debtor does not complete this requirement and does not qualify for one of the limited exceptions, the court will likely dismiss the bankruptcy case. Filing a standardized form known as the Voluntary Petition with the appropriate bankruptcy court commences the bankruptcy case. The automatic stay goes into effect immediately after the case is filed. The automatic stay prevents most creditors from taking actions against the debtor to collect debts. What this means is that the debtor has immediate protection from foreclosure, garnishment, lawsuits, phone calls, letters, etc. as soon as the case is filed. The filing fee for chapter 13 is currently $274. The fee must be paid when the case is filed unless the debtor applies to pay the fee in installments. The court may also waive the filing fee if the debtor falls below the poverty line. The debtor must also file with the court the summary of schedules, schedules, statement of financial affairs, chapter 13 plan and statement of current monthly income. These documents may be filed at the outset of the case or at some time thereafter at the discretion of the court. Debtors are also required to provide the trustee or the court with 60 days worth of income information as well as three years of tax returns. Other information may be required depending on the local rules.

Debt Limits

To be eligible to file Chapter 13 bankruptcy, a person can have only so much secured and unsecured debt. The current debt limits are $1,081,400 for secured debt and $360,475 for unsecured debt. If a debtor is over either debt limit, he or she may not be a debtor in a Chapter 13 bankruptcy. If the case is already filed, the court will order the Debtor to convert to another chapter or the case will be dismissed. There are no debt limits in Chapter 7 and Chapter 11 bankruptcy, and that is where most debtors will end up if they are over the Chapter 13 debt limits. One issue that comes up a lot in this area is under-secured property. For example, a hypothetical debtor’s house is worth $80,000 and the balance on the mortgage is $100,000. Some courts have held that the mortgage in our example should be treated as if $80,000 is secured and $20,000 is unsecured for purposes of determining debt limits. Other courts have held that the entire mortgage is secured regardless of the value of the property. This is a tricky issue because second position liens may be treated differently than first position liens. Regardless, this issue is definitely something to look out for.

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