Practical Bankruptcy: Walking Through a Simple Chapter 13 Case–Part 3

The initial steps in a Chapter 13 case right after it is filed.

 

This series of blog posts follows a married couple, Andrew and Amanda, through their Chapter 13 case. Their case is a relatively straightforward one, through which they are saving their home from foreclosure and taking care of a substantial income tax debt.

Their attorney has filed the case, along with their Chapter 13 plan. The plan proposes that they pay $525 per month to the Chapter 13 trustee for four years, a total of $25,200. From this their large first mortgage payment arrearage would be paid in full, their recent back income taxes would also be paid, the trustee and attorney fees would be paid as required, leaving only a modest amount to be distributed among the rest of the creditors (the exact amount depending on the amount of the trustee/attorney fees).

The Notice of Chapter 13 Bankruptcy Case

Within about a week after Amanda and Andrew’s Chapter 13 case is filed, their creditors all receive a notice of their filing—the Notice of Chapter 13 Bankruptcy Case, Meeting of Creditors, & Deadlines.  This states, among other things, that:

Creditors May Not Take Certain Actions

… the filing of the bankruptcy case automatically stays certain collection and other actions against the debtor, the debtor’s property, and certain codebtors.    ….   If you attempt to collect a debt or take other action in violation of the Bankruptcy Code, you may be penalized.

Because there is a foreclosure in process, Amanda and Andrew’s attorney contacts the mortgage holder’s attorney about the Chapter 13 filing and receives confirmation that the foreclosure proceeding has been stopped.

A copy of the Notice also goes to Amanda and Andrew and to their attorney.  It also states:

The debtor (both spouses in a joint case) must be present at the meeting [of creditors] to be questioned under oath by the trustee and by creditors. Creditors are welcome to attend but are not required to.

The couple immediately puts the date and time of the “Meeting of Creditors” on their calendar and makes all necessary arrangements for both to attend. That “Meeting” is usually scheduled to take place about a month after the case was filed.

Potential Objections to the Proposed Chapter 13 Plan

The above Notice to creditors is accompanied by a copy of Andrew and Amanda’s proposed plan. The Notice states that creditors “may object to confirmation of the plan and appear at the confirmation hearing.” That hearing is usually about a month after the “Meeting of Creditors.” The debtors almost never need to attend.

Amanda and Andrew have been informed by their attorney that in many cases no creditors raise objections to the plan, and that those that do tend to be ones directly referred to in their plan. In their case that includes their mortgage lender, whose back payments are proposed to only be brought current in nearly four years.  The lender may object, or file a motion for relief from stay, in order to impose consequences if Amanda and Andrew fail to make either the regular monthly mortgage payments or the plan payments for catching up on the arrears.

The IRS is also referred to in their plan. It would likely object if there is an inaccuracy in the tax amounts or some other disagreement with how the different tax debts may be treated under the law. But otherwise, the IRS may well have no reason to object.

ANY creditor CAN object, on grounds such as excessive expense amounts in Andrew and Amanda’s budget, or underestimates of their anticipated income, in order to try to make them pay more. However, most creditors don’t find it worth to pay their attorney to raise such objections because, even if successful, the change would likely only benefit them slightly.

The Chapter 13 trustee often does raise objections. But if the debtors provides thorough and accurate information to their attorney, and the attorney carefully follows the law in drafting the plan, the trustee may have no objections, or only relatively minor ones that can be resolved with modest adjustments in the plan.

 

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