Chapter 13 Bankruptcy

In a Chapter 13 bankruptcy proceeding, the debtor keeps all assets and creates a plan to repay debts within a three-to-five year time period. The repayment plan must be approved by the court. Once approved, the debtor makes payments to a court-appointed trustee, who distributes the payments to the creditors. Once the payment plan is completed, the debtor may receive a discharge of other outstanding debts.

Filing for Chapter 13 Bankruptcy

Who can file for Bankruptcy?

Any individual can file a Chapter 13 bankruptcy case. Filing a bankruptcy case without using an attorney, known as filing “pro se,” is extremely difficult. It is very important that a bankruptcy case be filed and handled correctly. Bankruptcy has long-term financial and legal consequences. Hiring an attorney is strongly recommended.

Corporations and partnership must have an attorney to file a bankruptcy case.

How do I file for Chapter 13 bankruptcy?

First, individual debtors are generally required to obtain credit counseling from an approved provider within 180 days before filing a case, and to file a statement of compliance and a certificate of credit counseling furnished by the provider. Failure to do so may result in dismissal of the case. To assist bankruptcy filers, the U.S. Trustee Program has created a list of approved credit counseling providers, located at http://www.justice.gov/ust/eo/bapcpa/ccde/cc_approved .htm.

After completing credit counseling, a bankruptcy case begins with a debtor obtaining and filling out the Official Bankruptcy Forms. The official bankruptcy forms contain a petition and several forms known as “schedules.” The petition informs the court of the debtor’s desire to file for bankruptcy. The schedules contain information about the debtor’s assets, liabilities, income, expenditures, and other necessary financial information. The debtor must fill out these forms and file them with the court. The forms should be filed with the bankruptcy court serving the area where the individual resides or where the business debtor has its principal place of business. In addition to completing the Official Bankruptcy Forms, the debtor will also need to pay a filing fee. The amount of the filing fee can be found at http://www.uscourts.gov/FederalCourts /Bankruptcy/BankruptcyResources/BankruptcyFilingFees.aspx. The fee should be paid to the clerk of the court upon filing or may, with the court’s permission, be paid by individual debtors in installments.

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In order to complete the Official Bankruptcy Forms, a debtor will need the following information:

1. A list of all creditors and the amount and nature of their claims;
2. The source, amount, and frequency of the debtor’s income;
3. A list of all of the debtor’s property; and
4. A detailed list of the debtor’s monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.

In Chapter 13 bankruptcy, the debtor will also need to file a repayment plan with the court. Often, the repayment plan is created with the help of a credit counselor during credit counseling. The court must approve of the repayment plan in order to proceed with Chapter 13 bankruptcy. Generally, the court will conduct a confirmation hearing to determine whether the repayment plan is feasible and in accordance with the bankruptcy code. Once the repayment plan is confirmed, the debtor will need to start making payments according to the plan.

After the petition is filed,  a trustee is appointed who will administer the case. The trustee collects payments from the debtor, according to the repayment plan, and distributes the payments to the creditors.

Once the repayment plan has been completed, the court may then grant a discharge of the debtor’s debts.

*Please visit the U.S. Courts website at http://www.uscourts.gov/FederalCourts/Bankruptcy/ BankruptcyBasics/Chapter13.aspx, as bankruptcy information changes on a regular basis.

The Discharge Process in Chapter 13 Bankruptcy

What is a bankruptcy discharge?

A bankruptcy discharge essentially releases the debtor from personal liability of all debts included in the bankruptcy. The discharge is a permanent court order establishing that the debtor is no longer legally obligated to pay debts that have been released in bankruptcy. Once a discharge is complete, the court clerk sends copies of the order to the debtor and all creditors. The order states that no collection attempts, legal actions or communications, such as phone calls and letters, can be made to the debtor regarding the debts.

Generally, discharges in Chapter 13 bankruptcy are only allowed for debts that the debtor has competed payments under the repayment plan. However, in limited situation a debtor may receive a hardship discharge, which discharges a debt even if the debtor has not satisfied the payments under the repayment plan. A hardship discharge may occur if circumstances arise that prevents the debtor from complying with the repayment plan. A hardship discharge is only available if three requirements are met: 1) the debtors failure to complete the repayment plan is out of the debtors control and is not the fault of the debtor; 2) the creditors have received at least as much as they would have in a Chapter 7 bankruptcy case; and 3) modification of the repayment plan is not possible.

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Are all of my debts discharged?

Generally, all debts provided for in the repayment plan are discharged upon completion of the plan. However, some debts are not dischargeable in a Chapter 13 bankruptcy case. These debts are long-term obligations such as a home mortgage, debts for child support, debts for certain taxes, debts for most government funded or guaranteed educational loans or benefit overpayments, debts relating to the death or physical injury of another while driving intoxicated or under the influence of drugs, and debts for restitution or a criminal fine included in a sentence on the debtors conviction of a crime. 

When can I get my debts discharged?

In a Chapter 13 case, a discharge is generally granted once the debtor has completed all payments under the repayment plan. Repayment plans usually occur over a three-to-five year time period. Therefore, a discharge in a Chapter 13 case typically occurs after three-to-five years.

Do I automatically get my debts discharged?

The debtor usually receives a discharge once the debtor has completed all payments under the repayment plan. However, there are certain instances when a discharge will not be granted. The first instance is when the debtor fails to complete an instructional course concerning financial management. The failure to compete a financial management course could lead the court to deny a debtor a discharge. If there are no adequate education programs available, the court may waive this requirement. To assist bankruptcy filers, the U.S. Trustee Program has created a list of approved financial management courses, located at http://www.justice.gov/ust/eo/bapcpa/ccde/de approved.htm.

 As long as the debtor completed payments according to the repayment plan, the debtor will receive a discharge. Creditors can object to confirmation of the Debtor’s proposed plan.

Other reasons why a debtor may not qualify for a discharge are described in section 727(a) of the Bankruptcy Code. This includes defrauding creditors, destroying records, violating earlier court orders, and others.

How do I get my debts discharged?

The bankruptcy court will mail a copy of the order of discharge to the creditors, trustee, debtor, and the debtor’s attorney. This order informs the creditors that the debts owed to them have been discharged and that they should not seek to further collect those debts. The order also warns the creditors that any failure to comply with the order could lead to punishment for contempt.

Are my spouse’s debts discharged when I file for bankruptcy?

In a community property state, such as Idaho, debts incurred by either spouse during the marriage are generally considered community debts. If only one spouse files for bankruptcy in Idaho, the eligible community debts of both spouses may be discharged.

Filing for Chapter 13 Bankruptcy with a Spouse

Idaho follows “community property” rules. This means that generally property acquired by one spouse during the marriage is owned by both spouses. Similarly, most debts incurred by one spouse during the marriage are owed by both spouses. Therefore, if only one spouse files for bankruptcy in Idaho, all of the eligible community debts of both spouses could be discharged.

Do I Owe My Spouse’s Debt?

In Idaho, generally debts acquired by one spouse in a marriage are owed by the “community” (the couple), even if only one spouse signed the paperwork for the debt.

After a legal separation or divorce, a debt is generally owed only by the spouse who incurred the debt, unless the debt was incurred for family necessities, to maintain jointly owned assets (e.g. to make repairs to a home still owned by both parties), or if the spouses keep a joint account.

Can a creditor take my spouse’s property?

Once a bankruptcy is filed an automatic stay is entered which prevents a debtor from trying to collect the debt.

In Idaho, before the bankruptcy is filed creditors of one spouse can go after the assets and income of the married couple to recover joint debts, regardless of whose name is on the title document to the asset. For example, a business owner's name may not be on the title to her spouse's boat, but in most community property states, that would not stop a creditor from suing in court to take the boat to pay off the business owner's debts, assuming the boat was purchased with community funds.

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