Financial woes seldom come in just one flavor, with many different types of debt piling up to the point of being unmanageable. Whether it is student debt, credit card debt, medical debt, or mortgage debt or a combination of any and all, it’s possible to lose everything if you don’t file for bankruptcy and do it the right way. One of the questions I am most frequently asked is, “Can filing Chapter 13 stop foreclosure?”
The answer is, “It depends.”
To understand the factors, you need to understand what filing for a chapter 13 bankruptcy actually means.
Chapter 13 ABC’s
Chapter 13 bankruptcies are restructuring-type bankruptcies – also called the earner’s plan – as opposed to Chapter 7 liquidation bankruptcies. Chapter 13 restructures your debts so that they can eventually be paid off to the satisfaction of the bankruptcy court. They are more complex and take a longer time to discharge than Chapter 7. Over the course of three to five years or more if approved for cause, you will pay the bankruptcy court a given amount each month, which the US Trustee will use to pay your creditors.
Sounds simple, right?
Filing for Chapter 13 is complex. It’s not a DIY job unless you already happen to be a bankruptcy lawyer. Using a bankruptcy preparer might not cut it either, since bankruptcy preparers are not allowed to give legal advice, and are not trained in bankruptcy law at the federal or state level. If your filing is denied, you have to start all over again. That’s why it’s important to get it right the first time. Here’s how it works from start to finish.
Qualifying for Chapter 13
All bankruptcies have certain qualifications that applicants must meet in order to proceed. These qualifications are revised from time to time, but specifically Chapter 13 is reserved for individuals even if they are self-employed, operating a sole proprietorship, or an unincorporated business. All petitioners must complete credit counseling within 180 days before filing a petition, and the credit counseling must be from an approved counselor. There are also monetary limits on the amount of debt. Unsecured debts may not be over $394,725 and secured debts must not exceed $1,184,200.
Corporations or partnerships are not eligible to file for Chapter 13 and must instead file for Chapter 11. You may not have filed any bankruptcy within 180 days, or have a previous petition dismissed due to failure to appear, failure to comply court, or voluntarily dismissed.
“Well, couldn’t I just file for Chapter 7? That’s the easy one, right?”
Chapter 7 is not for everyone. In the first place, being able to file for Chapter 7 is subject to a means test. If you can’t pass the test, then your filing is converted to Chapter 13.
Back to “Can filing Chapter 13 stop foreclosure?”
Chapter 13 has a lot of advantages to consider over Chapter 7, including the opportunity to save your home from foreclosure. The automatic stay granted in bankruptcy immediately suspends any collections, lawsuits, liens, garnishments, or other actions. After a bankruptcy plan is approved, you may be able to cure your missed mortgage payments and get up to date – thus ending the foreclosure and keeping your home. Of course, there are some caveats – principally that the payments must be made on time. Of course, the US Trustee will determine if you will be able to make those payments based on your current income vs. the mortgage payment vs. the actual value of your home.
Step by Step to Chapter 13
- Analyze your income and debts with the help of an attorney to determine if Chapter 13 is the right course. You will need to gather all of your paperwork together to accurately reflect your income, assets, and current debt.
- Complete the prefiling credit counseling course with an authorized counselor.
- File the Chapter 13 bankruptcy petition with the US courts. The automatic stay goes into effect immediately upon filing.
- The court will appoint a trustee to administer your petition, and you will receive notice of this from the court within a few days of filing.
- A few days after your filing, the court will send out notices to creditors that you have filed for a chapter 13 bankruptcy. It will also contain information such as your 341 meeting date, the deadline by which claims must be filed, whether or not a debtor’s plan was filed, and the date of the confirmation hearing.
- If any of your creditors have objections to the debtor’s plan, they must file them at least 25 days before the confirmation hearing.
- You must convey your tax returns and any other documents that US trustee requires a minimum of seven days before your 341 meeting.
- Within 30 days of filing your Chapter 13 bankruptcy petition, you will begin making payments under the repayment plan.
- Within 40 days after filing, you will attend your 341 meeting where the trustee and your creditors will ask you about the information in your paper. Creditors may raise objections to your debtor’s plan, but will need to file objections in order to receive a ruling. The trustee will supply you with a list of documents to bring, and you should include your tax returns for the previous four years.
- If you must modify your plan, it needs to be done before the confirmation hearing. Creditors are entitled to 20 days notice of an amended plan before the confirmation hearing.
- At the confirmation hearing, the court will address any objections from your creditors or the US trustee and will then confirm or deny the repayment plan.
- Creditors must file their claims within 70 days of your filing date, or up to 180 days for government agencies. If you have objections to claim, you must file objections and notify creditors 30 days in advance of the hearing.
- Over the course of 3 to 5 years, you must give US trustee statements as to your annual income and expenses.
- Before making your last payment, you must file a certificate with the court showing that you have completed your course in personal financial management.
- Upon the discharge of your final payment, you may be called to a discharge hearing or may receive a mail notice of your Chapter 13 bankruptcy discharge.
We Can Help!
At Van Horn Law Group, we are experts in debt and bankruptcy. We have the attorneys and experienced staff that you need to get the best possible without tearing your hair out. Filing for Chapter 13 bankruptcy can help to save your house from foreclosure, but it’s a long and complicated process. Start that journey with the firm that is on your side and at your side. Our Fort Lauderdale and West Palm Beach offices are open Monday through Saturday, and by appointment on Sunday. Even better, your initial consultation is free and you may qualify for our zero down bankruptcy. Call us today!
About Chad Van Horn: Chad T. Van Horn, Esq. is a South Florida business leader and founding partner attorney of Van Horn Law Group, P.A. Through a combination of dedicated philanthropy, spirited entrepreneurship and legal expertise, he applies his resources and network to helping people. Learn more about Chad Van Horn