How to maximize your chances for success in a Chapter 13 Bankruptcy case
For consumers, there are basically two Chapters of bankruptcy from which to choose, either Chapter 7 or Chapter 13 bankruptcy. Most of the cases that I file, approximately 75%, are Chapter 7 cases, with the remainder being Chapter 13. In a nutshell, if you file a Chapter 7, you pay your creditors nothing and get a discharge of your debt. In Chapter 13, you pay a percentage of your debt over a three to five year time period.
Most of my clients want to file a Chapter 7. Chapter 7 bankruptcy is usually much easier than a Chapter 13. It typically requires only one court hearing and is generally over in 4 to 6 months, best of all, there is no need to make payments to creditors, because, by definition, you do not have any disposable income at the end of the month to pay your creditors. Your debt is simply “wiped out” or discharged by order of the bankruptcy judge. Chapter 13, on the other hand, is a plan of reorganization. You will be involved with the bankruptcy court and your lawyer for 36 to 60 months and are required to make payments to a bankruptcy trustee. Sounds overwhelming? Not really. There are many benefits to filing a Chapter 13 including being able to get caught up on a house or car payment and thereby avoiding repossession or foreclosure. You pay your unsecured creditors (credit cards, medical bills etc.) a percentage of what you owe them based on what you can afford.
How do you maximize your chances of succeeding in a Chapter 13 bankruptcy case?
- Attend your court hearings.
- Make your plan payments on time.
- Be sure to maintain car, homeowners or renter’s and health insurances.
- Stay in touch with your attorney.
Attend your Chapter 13 court hearings.
In a typical Chapter 13 bankruptcy case, there are usually only two court hearings. Your initial meeting of creditors or section .341 hearing at which you must appear. The .341 hearing is typically less than ten minutes and is conducted by your Chapter 13 trustee. Your bankruptcy judge will not be there, and is, in fact, prohibited from attending. The second hearing which is typically six to eight weeks later is the confirmation hearing. This is where your bankruptcy judge either confirms your plan and makes it binding upon your creditors, or dismisses your case (typically due to non-payment). If you’ve made your plan payments and supplied our office with all the required documentation needed, your case will typically be confirmed.
Make your Chapter 13 plan payments on time.
Chapter 13 is a “repayment plan” it requires that you make timely payments to your Chapter 13 trustee in order to properly function. In the Detroit bankruptcy court which covers filings in most of the counties of southeastern Michigan, your plan payments will typically come right out of your pay-check and be mailed directly to your trustee. In other cases, we can get an automatic ACH payment going from your bank to the trustee. Should anything happen such as an illness or job loss which prevents you from making your payment, contact my office immediately.
Be sure to maintain car, homeowners or renter’s and health insurances.
A catastrophic loss such as a major hospitalization, totaled car or house fire can be devastating if you don’t have proper insurance coverage. Be sure to pay your premiums timely and not to let your coverage lapse. Secured creditors such as your car finance company or mortgage company will be notified by your insurance carrier if your coverage lapses and will usually ask your bankruptcy judge to lift the automatic stay (the veil of protection when you file bankruptcy) so that they can try to repossess or foreclose on the property.
Stay in touch with your bankruptcy attorney
If anything happens during your 3 to 5 year bankruptcy case that could possibly jeopardize the successful completion of your plan, please notify your attorney right away. There are many things that we can do on our end to help keep your case going. Options include modifying your plan to lower or excuse plan payments or possible conversion to Chapter 7 bankruptcy.