Husbands and Wives in Bankruptcy:
Husbands and wives may either file individually or
jointly. If both husband and wife file, then only one filing fee
and one administrative fee are charged. When a husband and wife
file a joint petition or each spouse files an individual
petition, the above detailed data must be gathered for both
spouses. If only one spouse files, the income and expenses of
the non-filing spouse must still be accurately assessed and
included in the debtor's schedules and statement of financial
affairs.
Bankruptcy Trustee:
Upon the filing of the petition, an impartial trustee is
appointed to administer the case. The primary role of the
chapter 13 trustee is to serve as a disbursing agent, collecting
payments from debtors and making distributions to creditors.
Bankruptcy's Automatic Stay:
The filing of the petition under chapter 13 creates an
"automatically stay." As long as the
"stay" is in affect, creditors generally cannot
initiate or continue any lawsuits, wage garnishment, or even
telephone calls demanding payments. Creditors receive notice of
the filing of the petition from the clerk or the trustee.
Further, chapter 13 contains a special automatic stay provision
applicable to creditors. Specifically, after the commencement of
a chapter 13 case, unless the bankruptcy court authorizes
otherwise, a creditor may not seek to collect a "consumer
debt" from any individual who is liable with the debtor.
By virtue of the automatic stay, an individual debtor
faced with a threatened foreclosure of the mortgage on his or
her principal residence can prevent an immediate foreclosure by
filing a chapter 13 petition. Chapter 13 then affords the debtor
a right to cure defaults on long-term home mortgage debts by
bringing the payments current over a reasonable period of time.
The debtor is permitted to cure a default with respect to a lien
on the debtor's principal residence up.
The Bankruptcy Repayment Plan:
The debtor must file a plan of repayment with the petition
or within fifteen days thereafter, unless extended by the court
for cause. The chapter 13 plan must provide for the full payment
of all claims entitled to priority - secured claims (unless the
holder of a particular claim agrees to different treatment of
the claim). Further, the plan must provide the same
treatment for each claim within each class of debt (no special
treatment for preferred creditors) and provide for the
submission of each portion of the debtors future income to the
supervision of the trustee as is necessary for the execution of
the plan.
Plans, which must be approved by the court, provide for
payments of fixed amounts to the trustee on a regular basis,
typically bimonthly or monthly. The trustee then distributes the
funds to creditors according to the terms of the plan, which may
offer creditors less than full payment on their claims. If the
trustee or a creditor with an unsecured claim objects to
confirmation of the plan, the debtor is obligated to pay the
amount of the claim or commit to the proposed plan all projected
'disposable income' during the period in which the plan is in
offer.
Disposable Income:
Disposable Income is defined as income not reasonably
necessary for the maintenance or support of the debtor or
dependents. If the debtor operates a business, disposable income
is defined as excluding those amounts which are necessary for
the payment of ordinary operating expenses.
Meeting of the Creditors:
A meeting of creditors is held in every case, during which
the debtor is examined under oath. It is usually held 20 to 50
days after the petition is filed. If the United States trustee
or bankruptcy administrator designates a place for the meeting
which is not regularly staffed by the United States trustee or
bankruptcy administrator, the meeting may be held no more than
60 days after the order for relief. The debtor must attend the
meeting, at which creditors may appear and ask questions
regarding the debtor's financial affairs and the proposed forms
of the plan. If a husband and wife have filed a joint petition,
they both must attend the creditors' meeting. The trustee will
also attend the meeting and question the debtor on the same
matters. In order to preserve their independent judgment,
bankruptcy judges are prohibited from attending. If there are
problems with the plan, they are typically resolved during or
shortly after the creditors' meeting. Generally, problems may be
avoided if the petition and plan are complete and accurate.
In a chapter 13 case, unsecured creditors who have claims
against the debtor must file their claims with the court within
90 days after the first date set for the meeting of creditors. A
governmental unit, however, may file a proof of claim until the
expiration of 180 days from the date the case is filed.
After the meeting of creditors is concluded, the bankruptcy
judge must determine at a confirmation hearing whether the plan
is feasible and meets the standards for confirmation set forth
in the Bankruptcy Code. Creditors, who will receive 25 days'
notice of the hearing, may object to confirmation. While a
variety of objections may be made, the most frequent ones are
that payments offered under the plan are less than creditors
would receive if the debtor's assets were liquidated or that the
debtor's plan does not commit all of the debtor's projected
disposable income for the three-year period of the plan.
Within thirty days after the filing of the plan, even if the
plan has not yet been approved by the court, the debtor must
start making payments to the trustee. If the plan is confirmed
by the bankruptcy judge, the chapter 1 3 trustee commences
distribution of the funds received in accordance with the plan
" as soon as practicable." If the plan is not
confirmed, the debtor has a right to file a modified plan. The
debtor also has a right to convert the case to a liquidation
under chapter 7. If the plan or modified plan is not confirmed
and the case is dismissed, the court may authorize the trustee
to retain a specified amount for costs, but all other funds paid
to the trustee are returned to the debtor.
On occasion, changed circumstances will affect a debtor's
ability to make plan payments, a creditor may object or threaten
to object to a plan, or a debtor may inadvertently have failed
to list all creditors. In such instances, the plan may be
modified either before or after confirmation. Modification after
confirmation is not limited to an initiative by the debtor, but
may be at the request of the trustee or an unsecured creditor.
Bankruptcy Discharge:
The chapter 13 debtor is entitled to a discharge upon
successful completion of all payments under the chapter 13 plan.
A discharge has the effect of releasing the debtor from all
debts provided for by the plan or disallowed, with limited
liens. Those creditors who were provided for in full or in part
under the chapter 13 plan may no longer initiate or continue any
legal or other action against the debtor to collect the
discharged obligations.
In return for the willingness of the chapter 13 debtor to
undergo the discipline of a repayment plan for three to five
years, a broader discharge is available under chapter 13 than in
a chapter 7 case. As a general rule, the debtor is discharged
from all debts provided for by the plan or disallowed, except
certain long term obligations (such as a home mortgage), debts
for alimony or child support, debts for most government funded
or guaranteed educational loans or benefit payments, debts
arising from death or personal injury caused by driving while
intoxicated or under the influence of drugs, and debts for
restitution or a criminal fine included in a sentence on the
debtor's conviction of a crime. To the extent that these types
of debts are not fully paid pursuant to the chapter 13 plan, the
debtor will still be responsible for these debts after the
bankruptcy case has concluded.
Bankruptcy's Hardship Discharge:
After confirmation of a plan, there are limited
circumstances under which the debtor may request the court to
grant a "hardship discharge" even though the debtor
has failed to complete plan payments. Generally, such a
discharge is available only to a debtor whose failure to
complete plan payments is due to circumstances beyond the
debtor's control and through no fault of the debtor, after
creditors have received at least as much as they would have
received in a chapter 7 liquidation case and when modification
of the plan is not possible. Injury or illness that precludes
employment sufficient to fund even a modified plan may serve as
the basis for a hardship discharge. The hardship discharge is
more limited than the discharge described above and does not
apply to any debts that are nondischargeable in a chapter 7
case.
