Texas Bankruptcy Blog : Texas Bankruptcy Lawyer & Attorney : Fears Nachawati law Firm : Chapter 7, Chapter 13, Consumer Bankrutpcy : Dallas, Fort Worth, Austin, Houston, San Antonio

The central feature of a Chapter 13 bankruptcy is the repayment plan. The Chapter 13 plan is a proposal by the debtor to repay certain debts in installments over three to five years. A plan must be filed within 14 days after the bankruptcy petition is filed, and a copy or summary of the plan is mailed to all creditors. Creditors or the bankruptcy trustee may object to the debtor’s plan which may require modification. Ultimately the repayment plan must be “confirmed” by the bankruptcy court.

Many Chapter 13 plans make no payments to unsecured creditors. The amount paid to unsecured creditors is largely guided by the outcome of the bankruptcy means test, which makes an initial presumption of the debtor’s ability to pay unsecured creditors over three to five years. The Chapter 13 Plan must provide payment of at least as much for unsecured creditors as they would have received had the debtor filed a Chapter 7 liquidation bankruptcy. Any priority claims must be paid in full and include a plan for paying secured debts during the plan term. Long term debts, like a mortgage payment or student loans, do not need to be paid off during the plan term, but the plan may provide for the cure of a defaulted note.

Plan payments are made to the Chapter 13 Trustee, who receives a fee for distributing the debtor’s monthly payment to creditors. The debtor’s first plan payment is due 30 days after the case is filed, however the Chapter 13 Plan may not be confirmed by the bankruptcy court until a later date. If a debtor fails to commence making plan payments to the trustee, a motion to dismiss the case will be filed. In most cases is recommended that the debtor execute a voluntary wage withholding to pay the Chapter 13 Trustee, although there is no requirement to do so.

If you are considering a Chapter 13 bankruptcy, it is important to discuss your repayment plan with your attorney. While it is possible to amend a repayment plan when your financial circumstances change, you and your attorney should propose a Chapter 13 plan that is both affordable and realistic. The success of your Chapter 13 case depends upon your ability to follow through with your plan. 

Many debtors with serious financial problems also own vehicles that are underwater. Fortunately, the federal Bankruptcy Code offers several options for the debtor to consider. One of the most sensible for many debtors is a Chapter 13 cram-down of the vehicle loan. A cram-down is simply the reduction of the amount that is owed to the fair market value of the vehicle. The debt is "crammed down" to what the vehicle is worth.

The basic rules of a cram-down are pretty straightforward:
1. A vehicle cram-down is only available in a Chapter 13 case (different options exist in other bankruptcy chapters);
2. The vehicle must be for personal use;
3. The debt must have been incurred more than 910 days (about 2 ½ years) before filing the bankruptcy petition ; and
4. The loan must be more than the fair market value of the vehicle.

A cram-down is accomplished through a court order and confirmed Chapter 13 bankruptcy plan. The bankruptcy court will receive evidence of the amount owed and the value of the vehicle. Once the court approves the cram-down, the amount of the secured claim will be the same as the value of the vehicle. The remaining balance will be ordered as unsecured, and will likely be discharged at the end of your bankruptcy case.

The new secured balance is paid to the Chapter 13 trustee who pays the creditor. The balance also includes a new court ordered interest rate. The approved rate of interest is directed by the United States Supreme Court in Till v. SCS Credit Corp, and commonly called the Till rate. The Till rate is often less than the debtor’s original interest rate, and lowers the monthly payment.

While the federal bankruptcy laws are meant to be uniform across the country, the sweeping changes to the Bankruptcy Code in 2005 left many questions that are still being resolved by different circuits. For instance, recently the Ninth Circuit in the case of In re Penrod broke from the rest of the country and decided that the amount of negative equity in a trade-in that was rolled into a new vehicle loan could be stripped off, even when the loan is less than 910 days old. This case highlights the different interpretations of the new bankruptcy laws and why it is critical to retain experienced counsel for your case.

If you are considering bankruptcy and own a vehicle that is underwater, speak with an experienced bankruptcy attorney and discuss your options. Your attorney can explain the several options for keeping or surrendering a vehicle during bankruptcy, and help you decide the best course of action for your family.

During a Chapter 13 bankruptcy the debtor develops a plan to repay all or part of his debts through installments.  Once the bankruptcy court confirms the plan, the debtor is obligated to make payments over three to five years.  A lot can happen during those years, and sometimes a debtor is unable to pay the plan installment payments.  Fortunately the bankruptcy laws provide the Chapter 13 debtor considerable flexibility when facing changed financial circumstances.

If your inability to pay the plan installments is due to a temporary interruption in pay (lay off, change in employment, etc.) or an unexpected financial emergency (car repairs, medical expenses, etc.), you may be able to obtain a suspension of payments for a couple of months.  A suspension only delays your plan payments, so your plan will be extended to make these payments up in the future.  Since a Chapter 13 plan cannot extend past 60 months, suspending plan payments may only work for certain below-median income cases that are not initially scheduled as 60 month plans.

Modifying your Chapter 13 plan is another option, especially if your financial change is not temporary and you will continue to have difficulty paying your plan installments.  When you propose to modify the terms of your Chapter 13 plan, the bankruptcy court will scrutinize your financial records to determine what you can pay and whether creditors will receive more if your case was converted to Chapter 7 (a liquidation bankruptcy).

Since a Chapter 13 bankruptcy is a voluntary case, you can always dismiss your bankruptcy case.  If your case is dismissed prior to discharge, you will typically not be barred from re-filing and receiving a discharge in the future.  However, there are certain exceptions that may apply, and dismissal is usually a last option.  Consult with your bankruptcy attorney.

If your change of circumstances prevents you from affording any payment to creditors, you may opt for voluntary conversion to Chapter 7.  One benefit of conversion is that any debt incurred since your Chapter 13 filing date can be included in the Chapter 7 case. 

A hardship discharge is an option if your change in circumstances was beyond your control (job loss, illness, disability, etc.) and a Chapter 13 modification is not a solution.  A hardship discharge will end the Chapter 13 case prematurely and eliminate the remaining scheduled payments.  Hardship discharges are only granted for the most extreme cases.

If you find yourself unable to pay your Chapter 13 plan installments, speak with your bankruptcy attorney immediately.  While there are options for dealing with a financial change, delaying action will only make matters worse.  Speak with your attorney and be proactive in dealing with your finances.

In a Chapter 13 bankruptcy case the debtor proposes a plan to pay back creditors.  That plan is composed of monthly payments to satisfy all or part of the creditors' claims over three to five years.  Monthly payments are made to the Chapter 13 Trustee, who then pays your creditors. 

There is often confusion over when the first plan payment due. Section 1326 of the Bankruptcy Code directs that the first payment must be made within 30 days after filing the bankruptcy case, even if the debtor’s bankruptcy plan has not yet been approved by the court.  Often the first meeting with the Trustee (also known as the "341 meeting" or "meeting of creditors") is scheduled more than 30 days after the filing date, so the Trustee expects your first payment before that meeting.  The Trustee will hold all payments until the plan is approved by the Bankruptcy Court (called "confirmation"), and then make distributions to creditors. 

It is critical that you make this initial payment within thirty days after filing.  It is especially important to monitor the status of this first payment when you have instructed your employer to pay the Trustee from your wages.  It is your responsibility to ensure that this first payment is made, and neither the Trustee nor the Bankruptcy Court gives much latitude to a debtor who misses the first deadline in the case.