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The Chapter 13 Plan and Confirmation Hearing
Unless the court grants an extension, the debtor must file a repayment plan with the petition or within 14 days after the petition is filed. A plan must be submitted for court approval and must provide for payments of fixed amounts to the trustee on a regular basis, typically 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.
Types of Claims. There are three types of claims: priority, secured, and unsecured. Priority claims are those granted special status by the bankruptcy law, such as most taxes and the costs of bankruptcy proceeding. (3) Secured claims are those for which the creditor has the right take back certain property (i.e., the collateral) if the debtor does not pay the underlying debt. In contrast to secured claims, unsecured claims are generally those for which the creditor has no special rights to collect against particular property owned by the debtor.
The plan must pay priority claims in full unless a particular priority creditor agrees to different treatment of the claim or, in the case of a domestic support obligation, unless the debtor contributes all "disposable income" - discussed below - to a five-year plan.
If the debtor wants to keep the collateral securing a particular claim, the plan must provide that the holder of the secured claim receive at least the value of the collateral. If the obligation underlying the secured claim was used to buy the collateral (e.g., a car loan), and the debt was incurred within certain time frames before the bankruptcy filing, the plan must provide for full payment of the debt, not just the value of the collateral (which may be less due to depreciation). Payments to certain secured creditors (i.e., the home mortgage lender), may be made over the original loan repayment schedule (which may be longer than the plan) so long as any arrearage is made up during the plan.
The plan need not pay unsecured claims in full as long it provides that the debtor will pay all projected "disposable income" over an "applicable commitment period," and as long as unsecured creditors receive at least as much under the plan as they would receive if the debtor's assets were liquidated under chapter 7. In chapter 13, "disposable income" is income (other than child support payments received by the debtor) less amounts reasonably necessary for the maintenance or support of the debtor or dependents and less charitable contributions up to 15% of the debtor's gross income. If the debtor operates a business, the definition of disposable income excludes those amounts which are necessary for ordinary operating expenses. The "applicable commitment period" depends on the debtor's current monthly income. The applicable commitment period must be three years if current monthly income is less than the state median for a family of the same size - and five years if the current monthly income is greater than a family of the same size. The plan may be less than the applicable commitment period (three or five years) only if unsecured debt is paid in full over a shorter period.
Payments. Within 30 days after filing the bankruptcy case, even if the plan has not yet been approved by the court, the debtor must start making plan payments to the trustee. . If any secured loan payments or lease payments come due before the debtor's plan is confirmed (typically home and automobile payments), the debtor must make adequate protection payments directly to the secured lender or lessor - deducting the amount paid from the amount that would otherwise be paid to the trustee.
Confirimation Hearing. No later than 45 days after the meeting of creditors, the bankruptcy judge must hold a confirmation hearing and decide whether the plan is feasible and meets the standards for confirmation set forth in the Bankruptcy Code. Creditors will receive 28 days' notice of the hearing and 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 or five year applicable commitment period.
If the court confirms the plan, the chapter 13 trustee will distribute funds received under the plan "as soon as is practicable." If the court declines to confirm the plan, the debtor may file a modified plan. The debtor may also convert the case to a liquidation case under chapter 7. If the court declines to confirm the plan or the modified plan and instead dismisses the case, the court may authorize the trustee to keep some funds for costs, but the trustee must return all remaining funds to the debtor (other than funds already disbursed or due to creditors).
Plan Modification. Occasionally, a change in circumstances may compromise the debtor's ability to make plan payments. For example, a creditor may object or threaten to object to a plan, or the 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.Jordan E. Bublick, Miami and Palm Beach, Florida, Attorney at Law, Practice Limited to Bankruptcy Law, Member of the Florida Bar since 1983
How Chapter 13 Works
Filing of Case. A chapter 13 case begins by filing a petition with the bankruptcy court serving the area where the debtor has a domicile or residence. Unless the court orders otherwise, the debtor must also file with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a schedule of executory contracts and unexpired leases; and (4) a statement of financial affairs. The debtor must also file a certificate of credit counseling, evidence of payment from employers, if any, received 60 days before filing; and a statement of monthly net income and any anticipated increase in income or expenses after filing.
The debtor must provide the chapter 13 case trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case (including tax returns for prior years that had not been filed when the case began). A husband and wife may file a joint petition or individual petitions.
The courts must charge a $281.00 filing fee. Normally the fees must be paid to the clerk of the court upon filing. If a joint petition is filed, only one filing fee and one administrative fee are charged. Debtors should be aware that failure to pay these fees may result in dismissal of the case.
In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, the debtor must compile the following information:
- A list of all creditors and the amounts and nature of their claims;
- The source, amount, and frequency of the debtor's income;
- A list of all of the debtor's property; and
- A detailed list of the debtor's monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.
Married individuals must gather this information for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse is required so that the court, the trustee and creditors can evaluate the household's financial position.
Appointment of Chapter 13 Trustee. When an individual files a chapter 13 petition, an impartial trustee is appointed to administer the case. The chapter 13 trustee both evaluates the case and serves as a disbursing agent, collecting payments from the debtor and making distributions to creditors.
Automatic Stay. Filing the petition under chapter 13 "automatically stays" (stops) most collection actions against the debtor or the debtor's property. Filing the petition does not, however, stay certain types of actions listed under 11 U.S.C. § 362(b), and the stay may be effective only for a short time in some situations. The stay arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even make telephone calls demanding payments. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by the debtor.
Chapter 13 also contains a special automatic stay provision that protects co-debtors. Unless the bankruptcy court authorizes otherwise, a creditor may not seek to collect a "consumer debt" from any individual who is liable along with the debtor. Consumer debts are those incurred by an individual primarily for a personal, family, or household purpose.
Saving Home from Foreclosure. Individuals may use a chapter 13 proceeding to save their home from foreclosure. The automatic stay stops the foreclosure proceeding as soon as the individual files the chapter 13 petition. The individual may then bring the past-due payments current over a reasonable period of time. Nevertheless, the debtor may still lose the home if the mortgage company completes the foreclosure sale under state law before the debtor files the petition. The debtor may also lose the home if he or she fails to make the regular mortgage payments that come due after the chapter 13 filing.
Meeting of Creditors. Between 21 and 50 days after the debtor files the chapter 13 petition, the chapter 13 trustee will hold a meeting of creditors. During this meeting, the trustee places the debtor under oath, and both the trustee and creditors may ask questions. The debtor must attend the meeting and answer questions regarding his or her financial affairs and the proposed terms of the plan. If a husband and wife file a joint petition, they both must attend the creditors' meeting and answer questions. In order to preserve their independent judgment, bankruptcy judges are prohibited from attending the creditors' meeting. The parties typically resolve problems with the plan either during or shortly after the creditors' meeting. Generally, the debtor can avoid problems by making sure that the petition and plan are complete and accurate, and by consulting with the trustee prior to the meeting.
After the meeting of creditors, the debtor, the chapter 13 trustee, and those creditors who wish to attend will come to court for a hearing on the debtor's chapter 13 repayment plan.
Creditors' Claims. In a chapter 13 case, to participate in distributions from the bankruptcy estate, unsecured creditors must file their claims with the court within 90 days after the first date set for the meeting of creditors. A governmental unit, however, has 180 days from the date the case is filed file a proof of claim.
Jordan E. Bublick, Miami and Palm Beach, Florida, Attorney at Law, Practice Limited to Bankruptcy Law, Member of the Florida Bar since 1983
Chapter 13 Eligibility
Any individual, even if self-employed or operating an unincorporated business, is eligible for chapter 13 relief as long as the individual's unsecured debts are less than $360,475 and secured debts are less than $1,081,400. These amounts are adjusted periodically to reflect changes in the consumer price index. A corporation or partnership may not be a chapter 13 debtor.
An individual cannot file under chapter 13 or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor's willful failure to appear before the court or comply with orders of the court or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens.
In addition, no individual may be a debtor under chapter 13 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency.
Jordan E. Bublick, Miami and Palm Beach, Florida, Attorney at Law, Practice Limited to Bankruptcy Law, Member of the Florida Bar since 1983
Chapter 13 Bankruptcy
A chapter 13 bankruptcy is also called a wage earner's plan. It enables individuals with a regular income to develop a plan to repay all or part of their debts.
Length of Chapter 13 Plan. Under chapter13, debtors propose a repayment plan to make installments to creditors over three to five years. If the debtor's current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period "for cause." If the debtor's current monthly income is greater than the applicable state median, the plan generally must be for five years. In no case may a plan provide for payments over a period longer than five years. 11 U.S.C. §1322(d). During this time the law forbids creditors from starting or continuing collection efforts
Advantages of Chapter 13 over Chapter 7. Chapter 13 offers individuals a number of advantages over a chapter 7 case. Perhaps most significantly, chapter 13 offers individuals an opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time. Nevertheless, they must still make all mortgage payments that come due during the chapter 13 plan on time.
Another advantage of chapter 13 is that it allows individuals to reschedule secured debts (other than a mortgage for their primary residence) and extend them over the life of the chapter 13 plan. Doing this may lower the payments.
Chapter 13 also has a special provision that protects third parties who are liable with the debtor on "consumer debts." This provision may protect co-signers.
Finally, chapter 13 acts like a consolidation loan under which the individual makes the plan payments to a chapter 13 trustee who then distributes payments to creditors. Individuals will have no direct contact with creditors while under chapter 13 protectionJordan E. Bublick, Miami and Palm Beach, Florida, Attorney at Law, Practice Limited to Bankruptcy Law, Member of the Florida Bar since 1983
Tommy needs to file bankruptcy.
We’ve been holding off filing his papers for several months. Why? Before he talked to me as his lawyer, Tommy had pulled $40,000 out of his 401k. That was a problem–as long as it was in his 401k it was safe. But once it hit his bank account, the court, or his creditors, could grab it. (Virginia law allows Tommy, or most people, to protect $5000 in the bank.)
We spent almost three hours in two meetings planning for Tommy to use that money. Use it for things he needed, perfectly legal things that won’t be questioned. Things we can spell out on his court papers.
At the second meeting Tommy showed me an “asset notice” that had been sent to him by the bankruptcy trustee in his ex-wife’s Sue’s bankruptcy What’s this about? We looked it up in the court’s computer.
Sue will have to write a check to the trustee for $16,000.00. Sue and her bankruptcy lawyer didn't take time to plan
Tommy’s ex-wife Sue filed bankruptcy while she had more than $19,000 in the bank. Since Virginia law allows her, like Tommy, to protect only $5000, her trustee will take the other $14,000! Ouch!
(Actually, it’s a little worse. Sue has used $2000 of her $5000 cash protection when she filed before back in 1999. So she only had $3000 left.)
This $16,000 loss would hurt anyone–but especially Sue, who’s been out of work for more than six months.
Sue saved $1600 by using the bankruptcy lawyer she picked–he charged her $800 and I charged Tommy three times that much. But she lost $16,000 because she and her bankruptcy lawyer didn’t take the time for planning.
(Maybe Sue didn’t tell the lawyer about all the money she had in the bank. The detail forms weren’t filed until 31 days after her short form was sent to the court. You need special permission to be that late.)
People see a bankruptcy lawyer because they need protection from their creditors. Careful bankruptcy planning aims for the maximum protection and the smallest loss.
Planning. That’s why I ask my clients to fill in my own 37 (!) page form before we meet. And why I often charge more than double what some lawyers do.
(Just so you know–of course I’ve changed the names and the details on this story. But the numbers–the numbers are real.)
In In re Pamela Persaud, case No. 12-43602-CEC, US Bankruptcy Court, EDNY, February 4, 2013 involved the Means Test, the presumption of abuse and what expenses can be deducted in calculating the Means Test. On Line 17 of the Means Test, the Debtor deducted $5,742.19 form the total monthly income as a "marital adjustment", which she claimed is income of her husband that was not regularly contributed for household expenses. The United States Trustee contended that tuition payments for the couples children were household expenses and should have been counted as a Debtor's income in the means test calculation. The Bankruptcy Judge provided that income of a non-filing spouse can be excluded only to the extent it is not regularly contributed to household expenses. An expense paid by the non-debtor spouse will be considered a household expense and thus included in income on the means test, unless the expense is purely personal to the non-debtor spouse. The Debtor's position was that since the tuition was paid for solely by the non-filing husband who was contractually liable, from his separate monies, those expenses should not be considered household expenses. The Bankruptcy Judge disagreed citing section 101(10A)(b) of the Bankruptcy Code which provides that income includes any amount paid by any entity other than the debtor... on a regular basis for the household expenses of the debtor or the debtor' dependents. The Means Test is an extremely complex calculation and debtor's must use extreme care and caution when making those calculations. Jim
In re Mary Veronica Santiago-Monteverde No. 11-15494 (JMP) SDNY April 10, 2012, is another case where a bankruptcy judge in the Southern District of New York held that a bankruptcy trustee was allowed to sell a debtor's rent stabilized lease to her landlord. Ms. Mary Veronica Santiago-Monteverde lived in the East Village, in New York and after she filed for chapter 7 bankruptcy, her landlord, East 7th Street Development Corp. made an offer to the Bankruptcy Trustee to purchase her interest in the lease. The bankruptcy trustee agreed to sell the lease and the Debtor objected to the sale holding that she was entitled to exempt the value of her rent stabilized lease as a "public assistance benefit" within the meaning of section 282(2) of the New York Debtor and Creditor law. In New York, exempt property in a bankruptcy case is governed by New York State Debtor Creditor law. The bankruptcy judge rejected Ms. Santiago-Monteverde's argument and the rent stabilized lease was sold to the landlord. The bankruptcy judge in his opinion stated that it is undisputed that a rent-stabilized lease is property of the estate and that the Bankruptcy Trustee may assume or reject any executory contract or unexpired lease of the debtor pursuant to section 365 of the Bankruptcy Code.
Bankruptcy Glossary
A
adversary proceeding
A lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the court. A nonexclusive list of adversary proceedings is set forth in Fed. R. Bankr. P. 7001.
assume
An agreement to continue performing duties under a contract or lease.
automatic stay
An injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed.
Bbankruptcy
A legal procedure for dealing with debt problems of individuals and businesses; specifically, a case filed under one of the chapters of title 11 of the United States Code (the Bankruptcy Code).
Bankruptcy Code
The informal name for title 11 of the United States Code (11 U.S.C. §§ 101-1330), the federal bankruptcy law.
bankruptcy court
The bankruptcy judges in regular active service in each district; a unit of the district court.
bankruptcy estate
All legal or equitable interests of the debtor in property at the time of the bankruptcy filing. (The estate includes all property in which the debtor has an interest, even if it is owned or held by another person.)
bankruptcy judge
A judicial officer of the United States district court who is the court official with decision-making power over federal bankruptcy cases.
bankruptcy petition
The document filed by the debtor (in a voluntary case) or by creditors (in an involuntary case) by which opens the bankruptcy case. (There are official forms for bankruptcy petitions.)
Cchapter 7
The chapter of the Bankruptcy Code providing for "liquidation,"(i.e., the sale of a debtor's nonexempt property and the distribution of the proceeds to creditors.)
chapter 9
The chapter of the Bankruptcy Code providing for reorganization of municipalities (which includes cities and towns, as well as villages, counties, taxing districts, municipal utilities, and school districts).
chapter 11
The chapter of the Bankruptcy Code providing (generally) for reorganization, usually involving a corporation or partnership. (A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in chapter 11.)
chapter 12
The chapter of the Bankruptcy Code providing for adjustment of debts of a "family farmer," or a "family fisherman" as those terms are defined in the Bankruptcy Code.
chapter 13
The chapter of the Bankruptcy Code providing for adjustment of debts of an individual with regular income. (Chapter 13 allows a debtor to keep property and pay debts over time, usually three to five years.)
chapter 15
The chapter of the Bankruptcy Code dealing with cases of cross-border insolvency.
claim
A creditor's assertion of a right to payment from the debtor or the debtor's property.
confirmation
Bankruptcy judges's approval of a plan of reorganization or liquidation in chapter 11, or payment plan in chapter 12 or 13.
consumer debtor
A debtor whose debts are primarily consumer debts.
consumer debts
Debts incurred for personal, as opposed to business, needs.
contested matter
Those matters, other than objections to claims, that are disputed but are not within the definition of adversary proceeding contained in Rule 7001.
contingent claim
A claim that may be owed by the debtor under certain circumstances, e.g., where the debtor is a cosigner on another person's loan and that person fails to pay.
creditor
One to whom the debtor owes money or who claims to be owed money by the debtor.
credit counseling
Generally refers to two events in individual bankruptcy cases: (1) the "individual or group briefing" from a nonprofit budget and credit counseling agency that individual debtors must attend prior to filing under any chapter of the Bankruptcy Code; and (2) the "instructional course in personal financial management" in chapters 7 and 13 that an individual debtor must complete before a discharge is entered. There are exceptions to both requirements for certain categories of debtors, exigent circumstances, or if the U.S. trustee or bankruptcy administrator have determined that there are insufficient approved credit counseling agencies available to provide the necessary counseling.
creditors' meeting
see 341 meeting
current monthly income
The average monthly income received by the debtor over the six calendar months before commencement of the bankruptcy case, including regular contributions to household expenses from nondebtors and income from the debtor's spouse if the petition is a joint petition, but not including social security income and certain other payments made because the debtor is the victim of certain crimes. 11 U.S.C. § 101(10A).
Ddebtor
A person who has filed a petition for relief under the Bankruptcy Code.
debtor education
see credit counseling
defendant
An individual (or business) against whom a lawsuit is filed.
discharge
A release of a debtor from personal liability for certain dischargeable debts set forth in the Bankruptcy Code. (A discharge releases a debtor from personal liability for certain debts known as dischargeable debts and prevents the creditors owed those debts from taking any action against the debtor to collect the debts. The discharge also prohibits creditors from communicating with the debtor regarding the debt, including telephone calls, letters, and personal contact.)
dischargeable debt
A debt for which the Bankruptcy Code allows the debtor's personal liability to be eliminated.
disclosure statement
A written document prepared by the chapter 11 debtor or other plan proponent that is designed to provide "adequate information" to creditors to enable them to evaluate the chapter 11 plan of reorganization.
Eequity
The value of a debtor's interest in property that remains after liens and other creditors' interests are considered. (Example: If a house valued at $100,000 is subject to a $80,000 mortgage, there is $20,000 of equity.)
executory contract or lease
Generally includes contracts or leases under which both parties to the agreement have duties remaining to be performed. (If a contract or lease is executory, a debtor may assume it or reject it.)
exemptions, exempt property
Certain property owned by an individual debtor that the Bankruptcy Code or applicable state law permits the debtor to keep from unsecured creditors. For example, in some states the debtor may be able to exempt all or a portion of the equity in the debtor's primary residence (homestead exemption), or some or all "tools of the trade" used by the debtor to make a living (i.e., auto tools for an auto mechanic or dental tools for a dentist). The availability and amount of property the debtor may exempt depends on the state the debtor lives in.
I
insider (of individual debtor)
Any relative of the debtor or of a general partner of the debtor; partnership in which the debtor is a general partner; general partner of the debtor; or a corporation of which the debtor is a director, officer, or person in control.
insider (of corporate debtor)
A director, officer, or person in control of the debtor; a partnership in which the debtor is a general partner; a general partner of the debtor; or a relative of a general partner, director, officer, or person in control of the debtor.
Jjoint administration
A court-approved mechanism under which two or more cases can be administered together. (Assuming no conflicts of interest, these separate businesses or individuals can pool their resources, hire the same professionals, etc.)
joint petition
One bankruptcy petition filed by a husband and wife together.
L
lienThe right to take and hold or sell the property of a debtor as security or payment for a debt or duty.
liquidation
A sale of a debtor's property with the proceeds to be used for the benefit of creditors.
liquidated claim
A creditor's claim for a fixed amount of money.
Mmeans test
Section 707(b)(2) of the Bankruptcy Code applies a "means test" to determine whether an individual debtor's chapter 7 filing is presumed to be an abuse of the Bankruptcy Code requiring dismissal or conversion of the case (generally to chapter 13). Abuse is presumed if the debtor's aggregate current monthly income (see definition above) over 5 years, net of certain statutorily allowed expenses is more than (i) $10,950, or (ii) 25% of the debtor's nonpriority unsecured debt, as long as that amount is at least $6,575. The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income.
motion to lift the automatic stay
A request by a creditor to allow the creditor to take action against the debtor or the debtor's property that would otherwise be prohibited by the automatic stay.
Nno-asset case
A chapter 7 case where there are no assets available to satisfy any portion of the creditors' unsecured claims.
nondischargeable debt
A debt that cannot be eliminated in bankruptcy. Examples include a home mortgage, debts for alimony or child support, certain taxes, debts for most government funded or guaranteed educational loans or benefit overpayments, 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. Some debts, such as debts for money or property obtained by false pretenses and debts for fraud or defalcation while acting in a fiduciary capacity may be declared nondischargeable only if a creditor timely files and prevails in a nondischargeability action.
O
objection to dischargeability
A trustee's or creditor's objection to the debtor being released from personal liability for certain dischargeable debts. Common reasons include allegations that the debt to be discharged was incurred by false pretenses or that debt arose because of the debtor's fraud while acting as a fiduciary.
objection to exemptions
A trustee's or creditor's objection to the debtor's attempt to claim certain property as exempt from liquidation by the trustee to creditors.
Pparty in interestA party who has standing to be heard by the court in a matter to be decided in the bankruptcy case. The debtor, the U.S. trustee or bankruptcy administrator, the case trustee and creditors are parties in interest for most matters.
petition preparer
A business not authorized to practice law that prepares bankruptcy petitions.
plan
A debtor's detailed description of how the debtor proposes to pay creditors' claims over a fixed period of time.
plaintiff
A person or business that files a formal complaint with the court.
postpetition transfer
A transfer of the debtor's property made after the commencement of the case.
prebankruptcy planning
The arrangement (or rearrangement) of a debtor's property to allow the debtor to take maximum advantage of exemptions. (Prebankruptcy planning typically includes converting nonexempt assets into exempt assets.)
preference or preferential debt payment
A debt payment made to a creditor in the 90-day period before a debtor files bankruptcy (or within one year if the creditor was an insider) that gives the creditor more than the creditor would receive in the debtor's chapter 7 case.
presumption of abuse
see means test
priority
The Bankruptcy Code's statutory ranking of unsecured claims that determines the order in which unsecured claims will be paid if there is not enough money to pay all unsecured claims in full. For example, under the Bankruptcy Code's priority scheme, money owed to the case trustee or for prepetition alimony and/or child support must be paid in full before any general unsecured debt (i.e. trade debt or credit card debt) is paid.
priority claim
An unsecured claim that is entitled to be paid ahead of other unsecured claims that are not entitled to priority status. Priority refers to the order in which these unsecured claims are to be paid.
proof of claim
A written statement and verifying documentation filed by a creditor that describes the reason the debtor owes the creditor money. (There is an official form for this purpose.)
property of the estate
All legal or equitable interests of the debtor in property as of the commencement of the case.
Rreaffirmation agreement
An agreement by a chapter 7 debtor to continue paying a dischargeable debt (such as an auto loan) after the bankruptcy, usually for the purpose of keeping collateral (i.e. the car) that would otherwise be subject to repossession.
Sschedules
Detailed lists filed by the debtor along with (or shortly after filing) the petition showing the debtor's assets, liabilities, and other financial information. (There are official forms a debtor must use.)
secured creditor
A creditor holding a claim against the debtor who has the right to take and hold or sell certain property of the debtor in satisfaction of some or all of the claim.
secured debt
Debt backed by a mortgage, pledge of collateral, or other lien; debt for which the creditor has the right to pursue specific pledged property upon default. Examples include home mortgages, auto loans and tax liens.
small business case
A special type of chapter 11 case in which there is no creditors' committee (or the creditors' committee is deemed inactive by the court) and in which the debtor is subject to more oversight by the U.S. trustee than other chapter 11 debtors. The Bankruptcy Code contains certain provisions designed to reduce the time a small business debtor is in bankruptcy.
statement of financial affairs
A series of questions the debtor must answer in writing concerning sources of income, transfers of property, lawsuits by creditors, etc. (There is an official form a debtor must use.)
statement of intention
A declaration made by a chapter 7 debtor concerning plans for dealing with consumer debts that are secured by property of the estate.
substantive consolidation
Putting the assets and liabilities of two or more related debtors into a single pool to pay creditors. (Courts are reluctant to allow substantive consolidation since the action must not only justify the benefit that one set of creditors receives, but also the harm that other creditors suffer as a result.)
341 meeting
The meeting of creditors required by section 341 of the Bankruptcy Code at which the debtor is questioned under oath by creditors, a trustee, examiner, or the U.S. trustee about his/her financial affairs. Also called creditors' meeting.
T
transfer
Any mode or means by which a debtor disposes of or parts with his/her property.
trustee
The representative of the bankruptcy estate who exercises statutory powers, principally for the benefit of the unsecured creditors, under the general supervision of the court and the direct supervision of the U.S. trustee or bankruptcy administrator. The trustee is a private individual or corporation appointed in all chapter 7, chapter 12, and chapter 13 cases and some chapter 11 cases. The trustee's responsibilities include reviewing the debtor's petition and schedules and bringing actions against creditors or the debtor to recover property of the bankruptcy estate. In chapter 7, the trustee liquidates property of the estate, and makes distributions to creditors. Trustees in chapter 12 and 13 have similar duties to a chapter 7 trustee and the additional responsibilities of overseeing the debtor's plan, receiving payments from debtors, and disbursing plan payments to creditors.
U
U.S. trustee
An officer of the Justice Department responsible for supervising the administration of bankruptcy cases, estates, and trustees; monitoring plans and disclosure statements; monitoring creditors' committees; monitoring fee applications; and performing other statutory duties. Compare, bankruptcy
administrator.
undersecured claim
A debt secured by property that is worth less than the full amount of the debt.
unliquidated claim
A claim for which a specific value has not been determined.
unscheduled debt
A debt that should have been listed by the debtor in the schedules filed with the court but was not. (Depending on the circumstances, an unscheduled debt may or may not be discharged.)
unsecured claim
A claim or debt for which a creditor holds no special assurance of payment, such as a mortgage or lien; a debt for which credit was extended based solely upon the creditor's assessment of the debtor's future ability to pay.
VVoluntary transfer
A transfer of a debtor's property with the debtor's consent.
Jordan E. Bublick, Miami and Palm Beach, Florida, Attorney at Law, Practice Limited to Bankruptcy Law, Member of the Florida Bar since 1983
Can You File Bankruptcy If You Have Unfiled Tax Returns? Yes, but it’s a bad idea. However, there is a solution. In addition to practicing bankruptcy law, I am a tax lawyer as well. I can prepare and file your tax returns for you, and make sure that your case is setup to handle any tax issues.
If you think that you owe back taxes the IRS, we need to get your tax returns filed as soon as possible. There are a variety of solutions to tax debt that are available to you, but they all require you to get all of your late returns filed.
Chapter 7
You can file a chapter 7 bankruptcy and receive a discharge, even if you have unfiled tax returns. You don’t have to file the tax returns to get a discharge of your debts in bankruptcy; but, you should file your tax returns.
There are four very good reasons that you should get all of your tax returns filed before you file a chapter 7 bankruptcy:
- You can go to jail for failing to file a tax return.
- If the tax return isn’t filed, you can’t discharge the debts on that tax year. If you owe taxes for that year, then the sooner you get the return filed, the sooner you can discharge that tax debt.
- If you have priority tax debts and a high income, then those priority tax debts can help you pass the means test and qualify for a chapter 7.
- I can’t help you structure your case to take care of tax issues, until all of your late tax returns are filed.
The biggest issue is the tax discharge waiting period. You can discharge taxes in chapter 7, but there are various waiting periods after you file the tax return, after the tax return is accepted, and after any additional tax is assessed.
The bottom line is that the sooner we can get your tax returns filed, the sooner those waiting periods will run out, and the sooner, I can take care of your debts.
Chapter 13
You can file a chapter 13 before your tax returns are filed; but it’s not a good idea. In addition to the reasons that you should file all of your tax returns before you file a chapter 7, there are some chapter 13 specific issues as well:
- If you do not have all of your tax returns filed within 120 days of filing your chapter 13 petition, your case will be automatically dismissed.
- Your chapter 13 plan payment is based in part on priority tax debts. If you have unfiled tax returns, it is impossible to determine how much priority tax debt you actually have; and therefore, it is impossible to accurately predict your chapter 13 plan payment.
Missing Prior Year Tax Documents
If you are missing documents for your prior year tax returns, that is not a problem. I can obtain transcripts of all W-2, 1099, and other income documents from the IRS. In addition, I can help you reconstruct your deductions and exemptions for prior years if you itemize your deductions or have business expenses or depreciation expenses.
What To Do About Unfiled Tax Returns
I prepare tax returns on a flat fee per return basis. If you are a chapter 13 client, this fee may be rolled into your plan payment if you qualify. My tax preparation fees are competitive with all of the major tax preparation companies. I do not outsource the tax return preparation.
If you owe back taxes on unfiled tax returns, I can present you with a variety of options for taking care of that tax debt either through the bankruptcy discharge or through direct negotiation with the IRS.
Filing a bankruptcy case is the first step in stopping a foreclosure on your home and the imposition of the “automatic stay” on collection activity stops the mortgage lender dead in their tracks, but for how long? Not long enough unless you do what the Bankruptcy Code requires. Make your post petition mortgage payments on [...]The post So you stopped that foreclosure by filing a bankruptcy case. Now what? appeared first on National Bankruptcy Forum.
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