|Introduction|
Chapter 13 is one method under the Bankruptcy Code to obtain relief from your
creditors while at the same time providing a fair means to pay them back as
much as you can. It allows you to keep some or all of your property during the
time you are paying creditors back and it permits you to modify some contract
payments and interest rates. Your plan can eliminate late charges and penalties
and allow you to extend payments on some of your debts. Chapter 13 has gained
widespread acceptance across the country as an attractive alternative to a
straight bankruptcy.
|Your Number|
At the time your Chapter 13 petition was filed, the Bankruptcy Clerk assigned
the case a number. This number is very important. You will need it whenever
you write to the Trustee's office or when you make a payment to the Trustee.
ALWAYS PUT YOUR CASE NUMBER ON ANY PAYMENTS OR LETTERS TO THE TRUSTEE'S
OFFICE.
|Chapter 13 Costs|
The costs for Chapter 13 are paid by each case. There are basically three
types of costs in each case. they are filing fees, the fee for your attorney
and the Trustee's fee. The filing and administrative fees are fixed by law
and will be paid first. The fee for your attorney is set by the Court and the
Order Confirming your plan covers this item. The United States Bankruptcy Code
states that the Chapter 13 Trustee is to charge an expense and compensation sum
to cases. The Trustee fee for the Western District of Kentucky is currently
3.20 percent.
|Your Attorney|
When your attorney agreed to represent you and signed your petition with you, your
attorney became obligated to appear and represent your interests throughout your
Chapter 13. Your attorney must continue to appear on your behalf as long as your
case is active or until the judge permits your attorney to withdraw from your case.
If you ever have any questions concerning your case, your creditors, your rights
under the Bankruptcy Code or your options under Chapter 13, make it a rule to
ask your attorney first.
Your attorney should have explained to you how much the legal fee would be and
how it will be paid. Be sure that you have specifically discussed fully whether
additional legal services during your plan will cost you more money or whether
the initial fee will cover all legal services. In most cases, your attorney will
be paid the allowed fee through the Chapter 13 plan. All fees charged by your
attorney must be reviewed and approved by the Bankruptcy Judge, even if you
agree to pay more. If you decide that you must change attorneys during your
Chapter 13, be sure that you let the Court and the Trustee know that you have
changed and who your new attorney is.
When you need advice or assistance, you should be able to get help from your
attorney. Although the Trustee's office is able to answer many questions, the law
prohibits the Trustee's staff from giving you any legal advice. If you have a
problem, a question or need advice, please call your lawyer's office first.
|Your Address|
We need to know your exact mailing address for as long as you are under Chapter 13.
We have the address which you put on your petition and we will send all notices
to that address until you or your attorney tell us to send them somewhere else. If you ever
move or change your mailing address, you must inform your attorney, the court,
and the Trustee in writing, of your new address.
|Calls to the Trustee's Office|
The Chapter 13 Trustee's phone number is (502) 581-9042. The office is open five
days a week from 8:30-5:00 p.m. If you have a question which your attorney cannot
answer, you may wish to ask the Trustee by writing a letter with your case number
and question. If you cannot wait for a written response, you may call the Trustee's
during the office hours. Do not feel that you have to talk personally with the
Trustee; the staff is familiar with the policies and guidelines under Chapter 13 and
is well qualified to discuss with you any problems or questions that may arise. The
Trustee and the Trustee's staff cannot give any legal advice, however, and encourage you
to direct all legal questions to your attorney.
|Payments|
Most Chapter 13 payments are made through a payroll deduction at your place of
employment. Only in unusual circumstances will the Court allow plan payments to
be made by you directly to the Trustee instead of by payroll deduction order.
Should you make a plan payment personally, do so by check, money order, postal order
or cashier's check, and be sure to include your name, address and your Chapter 13
case number on the check. DO NOT SEND CASH.
|Payroll Deduction Orders|
At the time you filed your Chapter 13 petition, the Judge probably issued an order
to your employer telling your employer to deduct your plan payment from your paycheck
and send it to the Chapter 13 Trustee. It is important that both you and your employer
understand that such an order IS NOT a garnishment. A garnishment or attachment
can come only from someone whom you owe money, and you do not owe the Court or
the Trustee any money. The court is just carrying out it's duty to administer the
plan you voluntarily filed and in which you gave the Court exclusive control
over your future pay as long as you are subject to a Chapter 13 plan. We find that
most employers understand that you are making a serious effort to repay your debts
instead of avoiding them and think more highly of an employee who seeks to pay
their debts. If your employer has any questions, he or she may call our office for
an explanation.
|Obligation to Pay|
Even though the Court will usually order your employer to deduct plan payments and send
them to the Trustee, you must remember that you have the obligation to make sure
payments are made. If your employer ever fails to make a plan payment deduction,
you must tell your lawyer that the deduction was not made and you must send the
needed plan payment to the Trustee by check, money order, postal order or cashier's
check. It is a good idea to keep your pay stubs to demonstrate that the deductions are
taking place. If a payment is not received by the Trustee as required by your plan
any creditor in your case may ask the Court to dismiss the case. The Trustee will
ask the Court to have you show cause why your case should not be dismissed because you
did not make your payment.
|Show Cause|
If you fail to make the payments to the Trustee as required by your plan, the
Trustee will ask you to come to Court to Show Cause why your case should not be dismissed
for failure to make your plan payments. It is very important to contact
your attorney if you ever expect to miss a payment due to being laid off, being
medically disabled or because you have changed jobs. If your case is dismissed
(unless you request to be dismissed), you might not be eligible for any kind
of bankruptcy relief for six months or longer, so it is important to talk to your attorney
if you know of any reason why the Trustee would not receive a payment. Remember
the Trustee's office has no authority to let you miss a payment or allow you to
pay less than your plan requires. Only the judge can make such a decision, and you
should contact your lawyer soon enough to ask the judge to change the requirements
of your plan if you feel that you cannot meet the obligations of your plan.
|Contacts by Creditors|
All the creditors that you listed on your Chapter 13 petition are under an automatic
restraining order which prohibits them from bothering you in any way. If you get
notices in the mail from your creditors, send them to your attorney. Delinquent
notices need not cause any great concern, but if you get a more personal, direct
contact from a creditor, such as a telephone call, a personal letter, a summons,
or a visit in person, you should immediately inform them that you are under
Chapter 13 and give them your case number, and your attorney's name and address.
Under no circumstances should you discuss the debt with them in any manner. Be
sure to tell your lawyer the name of the person who contacted you. Your lawyer
will want to follow up on such a call and the name of the person calling you is
very important.
|Dealing with Creditors|
You may not deal with a creditor, just as a creditor may not deal with you. You
cannot pick and choose some particular creditor and pay him "on the side", because all
of your debts must be paid under the authority of the Court, by the terms of the
law, and not by any personal desires. If you want to pay creditors, you must do
so through your Chapter 13 plan.
|Insurance|
In order for you to retain your property, even though your creditors must wait to
be paid through your Chapter 13 plan, you must make certain that your property
is insured. This is especially true of motor vehicles since the Bankruptcy Court
has a seperate rule requiring you to keep all motor vehicles insured at all times.
If you ever let insurance lapse on your car, truck, van, or motorcycle any creditor
with a lien on it can repossess the vehicle within five days. It is a good idea
to keep your insurance policies handy should any creditor ever believe that your
insurance has lapsed.
|Annual Debtor Reports|
Most people are very interested in knowing how much they owe to their creditors
and how much they have left to pay on their Chapter 13 plan. Once per year, the Trustee's
Office will send you a Report of all of your payments into your Chapter 13 Plan, and
how much each creditor was paid by the Chapter 13 Office.
|Claims of Creditors|
While every creditor which you list on your Chapter 13 petition is given the
opportunity to file a claim for payment, they are allowed only 90 days(except some government
agencies) from the Meeting of Creditors to file a claim. After the 90 days is up, you attorney will file a piece
of paper with the Court called Schedule of Allowed Claims. Your attorney should send you
a list of all creditors that filed a claim in your case, and the amount of the claim.
You should carefully review the list of claims that your attorney sends you to make sure
that the amount of money the creditor is asking for in your Bankruptcy is correct. If a
creditor is listed incorrectly or any amount claimed does not appear correct, you should
contact your lawyer at once, so that your attorney can object to the claim amount.
|How Creditors Are Paid|
The money which you pay to the Trustee is used to pay expenses of administration,
including payments to your attorney, and then will be paid to your creditors. So that
you will have some idea as to how the creditors are paid, you should know that there
are three basic types of claims: priority, secured, and unsecured. Generally you can
say that we pay administrative costs and your attorney's fees first, then creditors
with claims on your property (secured claims), then creditors holding tax claims
(priority), and then everyone else (unsecured claims). We do not pay anything to
unsecured creditors until the priority claims and the secured claims are current
in monthly payments. Due to this, it could be some time before the first payment
is made on the unsecured claims.
|The Percent Paid to Creditors|
When your plan was proposed, you and your lawyer calculated what Percent would be paid
to your unsecured creditors and this Percent was included on the Order
which confirmed your Chapter 13 plan.
If your Chapter 13 does not pay at least a 70 percent dividend, you will not
be able to obtain a discharge under Chapter 7 (straight bankruptcy) for six years
after your 13. Although you may feel that this is not important, giving up the right
to full bankruptcy relief is significant and could work to your disadvantage if, in
the future you were faced with a catastrophic financial problem.
If your financial situation improves while you are in your plan, you can increase
the dividend to your creditors and thus improve the effect of your discharge. If
you want to do this, meet with your attorney to review whether a better discharge
is possible.(see FAQ 26 -Tax Refunds-)
|Cosigners and Comakers|
A cosigner, comaker or guarantor on any of your consumer debts is generally protected
from contact by the creditor by something called the "Co-debtor stay". This
automatic protection applies in Chapter 13 cases. If the cosigner, comaker
or guarantor had given collateral for the loan, the creditor must request a hearing
before the Judge in order to proceed against the property. The co-debtor stay will
only protect cosigners, comakers or guarantors for the amount of debt your plan
proposes to pay. If your plan is not scheduled to pay all of the cosigned debt in
full, a creditor may obtain permission to collect from the cosigner, comaker or
guarantor, that portion of the debt that your plan is not going to pay.
|Credit Cards and Post Petition Debt|
When your plan is confirmed, the Judge will prohibit you from incurring any debt for
as long as you are under Chapter 13. This prohibits your from borrowing any money
from a finance company or bank or your credit union. You cannot receive an advance
of your salary. You cannot buy anything over time, like a car or an appliance, and
you cannot run up a bill to anyone.You cannot sign, co-sign or guarantee an
installment note and you cannot use a credit card. This applies to any member of your
family that is supported by the debtor under Chapter 13, whether they themselves are
under the jurisdiction of the Court or not, as long as the party under Chapter 13
may be responsible for the debts. The only exception to this is for medical emergencies,
so the Court will permit you to run up a bill to a doctor, a pharmacist, a dentist,
a hospital or clinic during your plan. If for some reason you feel that it is
important for you to be able to buy something on installments, or to be able to borrow
money, your attorney must obtain the Judge's permission. If you are paying regularly
into your Chapter 13 plan, there is a good reason to incur debt, and your ability to
pay your plan payment is not threatened, the Judge will generally grant permission.
|Obtaining Credit Without Permission|
Obtaining credit without permission of the Court is not only a violation of the
Court's order, it is subject to reversal by the Court. Any credit purchase you make
without approval of the court will be illegal, the goods would have to be returned
and you very likely would be out any payment you had made. You would also place your
plan in serious jeopardy if you obtain credit without approval.
|Selling Property|
You cannot dispose of any of your property, including land, without Court approval.
If you dispose of your property without permission, the transaction may be set aside.
If you want to sell your property, trade a car or sell your home, be sure to discuss
it with your attorney.
|When You're Through|
After you have successfully completed your plan, that is, when the Trustee has
received enough money from you to pay your creditors what you promised to pay them,
you will receive a notice from the Trustee that your payments can stop. Do not stop
making payments to the Trustee until you receive this notice.
When your plan is completed, and you receive a written notice of completion, you may receive a small refund check from the Trustee which is the amount of your last few payments not needed to pay your
creditors. You should not expect to receive this refund until the month after you
have received the notice of plan completion.
|Request for Dismissal|
Federal Bankruptcy law allows you to request that your Chapter 13 case be dismissed
at any time. No one can force you to remain under a Chapter 13 plan if you do not
wish to remain. If you desire to stop your case, contact your attorney. However
you should understand that a dismissal will reactivate all unpaid debts, all interest
finance charges, all late charges not allowed by the Bankruptcy Court, and all
debts of creditors who did not file their claims. In addition you will be forced to deal
with those creditors on their terms, not yours or the Courts. The request for dismissal
of your plan must be in writing and sent to the Bankruptcy Court.
|Contact by Creditor after Completion of Chapter 13|
When a creditor has had their claim paid by Chapter 13, whether partially or in full,
he should, and usually does, send the paid in full papers to you. Even if the
creditor fails to do this, it is not too significant since the official records of
the Court showing your plan is completely paid and you received a discharge would
overrule any claim he might make for additional money. Should you receive any
request for additional money after your plan is completed, do not pay without first
talking to your lawyer.
|Paying More Than Required|
If you are ever in a position where you wish to increase your payments to the Trustee,
even if only by a few dollars a week, this will have a big impact on finishing your plan
ahead of time. Paying a little more than required will reduce interest costs, administrative
expenses and cause the payroll deduction to stop that much sooner. If you ever wish to
increase your plan payments, contact your lawyer. If you wish to make a single extra
payment, you may do that by sending a money order or a cashier's check to the Trustee.
Be sure to put your case number on any payment you send to the Trustee. This will also
cause your plan to be shorter. Many people under Chapter 13 choose to pay a portion
of their income tax refund to the Trustee. This, too, will have the effect of shortening
your plan. By paying more than is required per month, you are still required to make
the minimum payments each month thereafter.
|Tax Refunds|
If your plan pays anything less than 100 percent to unsecured creditors, you are required
to also send all of your Federal and State Tax Refunds to the Office of the Chapter 13
Trustee, IN ADDITION to your regular payments. If you fail to send the refunds in to the
Chapter 13 Office, your case can be dismissed by the Court. It is YOUR responsibility
to endorse the refund check and send it to the Trustee's office.
|One Final Word|
Complying with a Chapter 13 plan is not easy. You may have to make a real sacrifice
to meet the obligations which you have specified in your plan and still live within your
Chapter 13 budget. Hundreds of families have successfully completed their Chapter 13
plans and know that they have resolved their debt problems without filing straight
bankruptcy and have paid most, if not all, of their obligations to their creditors.
Chapter 13 will only work for you if you work very hard at meeting your obligations
under your plan.