Questions about Chapter 13 bankruptcy that are frequently asked by our Chicago area clients.
What is Chapter 13 Bankruptcy?
Chapter 13 is a plan to repay your creditors. It consolidates your debt into one monthly payment, which is made to a trustee, who distributes it to your creditors.
How long is Chapter 13?
Anywhere from 3 to 5 years, based on your household size and income.
What is the difference between Chapter 13 and Chapter 7?
Chapter 13 is a debt consolidation, whereas Chapter 7 is for debt elimination. In Chapter 13, you have to make payments for 3-5 years. After you do that, the debt you didn't repay is eliminated.
Why should I file Chapter 13 instead of Chapter 7?
Chapter 13 has certain advantages over Chapter 7. You can use Chapter 13 to get rid of parking tickets and tollway violations. You can stop a foreclosure and catch up on a mortgage. You may be able to eliminate a secondary mortgage. You can undo a repossession. You can get your driver's license reinstated. Also, Chapter 13 may be necessary if you don't qualify for Chapter 7 because you have too much income or assets.
How much will it cost me to file for Chapter 13?
The Court fee is $310. You will usually have to make an additional down payment to our office to file, but most of the fees will be included in your consolidation. When you hire us, we will be your attorneys for the entire duration of time you are in Chapter 13.
I filed bankruptcy in the past. Can I file Chapter 13?
You can always file Chapter 13 whether or not you filed bankruptcy in the past. If you filed a Chapter 7 in the last 4 years, you are ineligible to receive a Chapter 13 discharge, but you can still file Chapter 13. Ineligibility for discharge just means that you would still have debt when you complete your Chapter 13, but get all other benefits of filing.
What do I need to provide to your office to file Chapter 13?
You will need 4 years of tax returns (or less if you did not need to file), and at least 60 days of paystubs. Sometimes we will need 6 months of paystubs. You also need to complete a credit counseling course.
How much will I have to pay in my Chapter 13?
We can answer this question after we analyze your income and expenses, after you tell us what you own, and when we have a list of your creditors. We do this at your consultation.
When will I have to start paying in my Chapter 13?
Payments to the trustee start 30 days after the filing of the case. You must start paying any debt left outside your plan (such as a mortgage) in the next month following the month in which the case is filed.
What are the methods of payment in Chapter 13?
Payments can be withheld from your payroll (for example, if paid twice a month, one half payment can be deducted each pay period). You can also pay by cashier's check or money order, or online by ACH transfer. The trustee will give you more details.
What is the role of the bankruptcy trustee?
The trustee collects your payments and distributes the payment to your creditors. The trustee also holds a meeting to verify the information in your petition. The trustee may attempt to argue for an increase in your plan payments. Ultimately the judge, not the trustee, decides whether your plan will be confirmed.
Who will find out that I filed for Chapter 13?
While Chapter 13 is a public record, only creditors, the trustee, and recipients of domestic support (such as child support) are actually notified of the filing.
Do I have to include all of my creditors in Chapter 13?
Yes, you do have to include all creditors who you owe in your petition. Sometimes, student loans, mortgages, and car loans are listed, but not included in the payment plan.
How can I make sure that all of my creditors are included?
We will pull your credit report. Please make sure to tell us about any creditors that are not listed in your report, such as payday loans, medical bills, parking tickets, and collections.
Is it possible to keep a credit card when filing Chapter 13?
Usually, no. It is almost always the case that all credit card accounts will be closed. You may be able to obtain new credit card accounts when the bankruptcy is over.
What will happen to my car loan in Chapter 13?
We can use Chapter 13 to reduce the interest rate on your car loan to as low as 5 percent. For older car loans, we can sometimes reduce the principal. Your car loan will almost always be included in your plan.
My car has been booted and towed by the City of Chicago. Will Chapter 13 get my car out of the pound?
Yes, if the reason is parking tickets, speeding tickets, or other municipal violations. We can get your car released within a week of filing.
What will happen to my mortgage in Chapter 13?
If you are behind on your mortgage, all of the back payments will be included in your Chapter 13 Plan. Foreclosure will stop. You must continue making your regular mortgage payments after we file your case. A junior mortgage can possibly be eliminated.
Can I reduce the principal and interest on my mortgage in Chapter 13?
Yes, but only for investment property. For your primary residence, you may be able to eliminate a junior mortgage.
How are student loans treated in Chapter 13?
We will usually include your student loans in your Chapter 13 Plan, in which case the lender(s) will receive a small payment from the trustee during your plan. However, because we cannot eliminate the student loan debt in Chapter 13, we recommend that you continue to pay down your student loan debt on your own during your plan.
How does Chapter 13 affect my credit?
Chapter 13 will remain on your credit report for 7 years from the date of filing. During the Chapter 13, you will not have much access to credit, but you can probably borrow to purchase a car if needed.
I am married. Do I have to include my spouse in my Chapter 13?
You can file on your own without your spouse. However, unless you are separated, the law requires your spouse's income and expenses to be listed in your Petition and factored into your plan payments.
Will I have to go to Court in my Chapter 13?
You will almost never have to attend court. A meeting with the trustee is required - you will need a social security card and driver's license (or state id).
What happens after my Chapter 13 is filed?
All collection activity is stopped. Roughly 45 days later, we will attend a short meeting with the trustee who will ask you questions about your income, expenses, and assets. After the meeting, the Court will decide whether to approve your plan at a confirmation hearing.
Is there a minimum or maximum amount of debt for Chapter 13?
There is no minimum. Currently, the maximum debt is $394,725 for unsecured (such as credit cards), and $1,184,200 for secured (such as mortgages and car loans).
I have scheduled monthly auto drafts from my accounts for my car loan and mortgage. How will this be treated in Chapter 13?
All auto drafts will be suspended upon the filing of the Chapter 13. For any accounts that you are paying separately from your Chapter 13 Plan (usually just the mortgage), you will probably need to make these payments manually without auto draft.
Can I lose my tax refund in Chapter 13?
Sometimes, yes. This will depend upon the trustee and Judge that your case is randomly assigned to. If you are required to turn over your refund, you can minimize the loss by having less money withheld from payroll for taxes. The idea is to have more money in your pocket from each paycheck, while minimizing the refund which would have to be turned over.
If I lose my job during Chapter 13, what happens?
If something happens that changes your financial picture, call us. We may be able to lower your Chapter 13 payments, or even convert your case to Chapter 7 so debt can be eliminated.
Once I file Chapter 13, what happens if I change my mind and decide not to continue?
You are free to dismiss your case at any time, but if you do so, your creditors can start collecting again, and you will lose all of the benefits of the Chapter 13.
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