Introduction To Chapter 13 Bankruptcy In Florida
Chapter 13 bankruptcy is a long-term repayment agreement, typically 3 to 5 years, which allows the debtor to repay his secure and unsecure creditors from his future income. Under Chapter 13, the debtor makes monthly payments to the court appointed trustee until the end of the period stipulated by the court. At the end of the repayment period, the debts will be discharged, and the debtor will be in good financial standing with the creditors.
Chapter 13 gives individuals an opportunity to reorganize their finances over a period of time. It is the best option for individuals who want to protect their valuable non-exempt assets from liquidation. This is contrary to Chapter 7 bankruptcy where assets are sold by a court appointed trustee to discharge debts. Chapter 13 bankruptcy can be used to eliminate or reduce debts to prevent mortgage foreclosure, cure default car payments or to reduce tax debts.
The Florida bankruptcy law provides that only Florida residents are eligible to file for Chapter 13 bankruptcy. Residents filing for Chapter 13 bankruptcy must prove that they have a regular and stable source of income to maintain the monthly payments to the creditors over the repayment period. If the applicant cannot prove this, then the application under Chapter 13 will not succeed. Spouses can file for bankruptcy jointly, and both will be eligible even if only one spouse can show proof of a regular and stable income.
Additionally, there is a debt limit for individuals filing for Chapter 13 bankruptcy. The 2020 debt limit is approximately $419,000 for unsecured debt and approximately $1,277,000 for secured debt. These limits are subject to change and individuals with debts above these limits are not permitted to file for Chapter 13 bankruptcy. The secured debts are loans such as mortgage or car loans which involves collateral. The unsecured debts include credit cards or personal loans issued by the bank or other financial institution which does not involve collateral.
Chapter 13 bankruptcy is filed in the local court with a repayment plan and a schedule of the debtor’s income and expenditure. The court takes approximately 95 days to approve the repayment plan after the petition is filed and the filing fees are paid. Once a person files for bankruptcy under Chapter 13, an automatic stay takes effect. The automatic stay prohibits the creditors from taking any legal action against the debtor for the default payments. The automatic stay prevents foreclosure, repossession of property and the initiation or continuation of any lawsuits.
Chapter 13 bankruptcy allows the debtor to modify the original mortgage agreement which is called mortgage modification. The debtor can force the mortgagor to accept a five-year repayment plan to settle the amount due for the default mortgage payments. The debtor does not necessarily have to complete paying the full mortgage within five years, but the default payments must be settled within that time.
Under Chapter 13, individuals are required to complete two credit counseling courses. The debtor must complete the first course within the 180 days immediately preceding filing for bankruptcy. The courses can be conducted individually or within a group a setting. The sessions can be done over the telephone, through internet media or in person. The debtor is required to file a statement of compliance with the court as proof of the course completion. The court may require the debtor to complete the second course after the bankruptcy petition is filed.
Chapter 13 Payment Plan
The Chapter 13 plan filed along with the bankruptcy petition is a proposal which outlines how the debtor will settle the balance owed throughout the repayment period. This payment proposal must be approved by the court before it takes effect. The court will appoint a trustee to oversee the process of repayment to the creditors. The trustee also collects the monthly payments from the debtor, however, if the debtor fails to adhere to the monthly payment plan, the trustee can file a Motion to Dismiss. Subsequently, the debtor will have 21 days to settle the overdue amount for the missed payments and the next payment due under the payment plan. The court will dismiss the Chapter 13 bankruptcy without hearing or additional notice if the debtor does not pay the overdue amount or fails to object to the Motion to Dismiss within 21 days. Nevertheless, if the debtor can prove that the missed payments were due to illness, job loss or an unforeseen circumstance, then the trustee may modify the payment plan instead of dismissing the Chapter 13 Bankruptcy. The debtor’s payments will increase for 12 months upon modification of the Chapter 13 plan to make up for the missed monthly payments under the payment plan.
The Chapter 13 plan covers payment to secured and unsecured creditors. The debtor may settle the balance owed to secured creditors by surrendering the collateral, that is, the asset used to secure the loan such as a house or a car. The amount due will be considered discharged if the debtor chooses to surrender the collateral. The creditor cannot pursue any legal action against the debtor for default payments if the debtor surrenders the collateral. If the debtor chooses not to surrender a collateral, then he is required to make contractual secured payments monthly, in accordance with the Chapter 13 plan approved by the court.
The process of repayment to the unsecured creditors is based on the debtor’s disposable income. The court will assess the debtor’s income and expenses to determine the debtor’s disposable income. The trustee has a duty to collect the debtor’s disposable income for payment to the unsecured creditors.
The Chapter 13 plan includes the secured debt payments for secured creditors and the disposal income for unsecured creditors. The first payment under the plan becomes due to the trustee 30 days after the Chapter 13 bankruptcy is filed in the court. Other fees to be considered when seeking to file Chapter 13 bankruptcy are attorney fees, court application fees and the trustee’s fees which are all approved by the court.
Meeting of the Creditors and Trustee (Section 341)
The creditors, the trustee, the debtor and the debtor’s attorney are required to have a meeting pursuant to 11 U.S Code § 341. The trustee presides over this meeting which is to be held approximately four weeks after the bankruptcy petition is filed in court. The meeting is to be held in a room without the bankruptcy judge as stipulated by law to ensure fairness.
The creditors and their attorneys may ask the debtor questions regarding their financial situation, but they are not allowed to interrogate or threaten the debtor to make any payments. The trustee will advise the debtor on how the payments should be made and the trustee may also provide his mailing address to the debtor for future payments.
The debtor must attend the 341 meeting with the attorney, but the court may reschedule the meeting if the debtor cannot attend the meeting. If the debtor fails to attend the rescheduled meeting, the court can dismiss the bankruptcy petition.
Chapter 13 bankruptcy offers a myriad of benefits for individuals seeking to protect their assets while repaying their debts. If you are seeking to save your home from foreclosure or to protect an asset you used as collateral or other assets from liquidation, then Chapter 13 is the best option for you. It is best to hire a bankruptcy lawyer before initiating the Chapter 13 bankruptcy to ensure that your Chapter 13 payment plan is carefully drafted, and your case is handled with efficiency, precision and accuracy.
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