Chapter 13 Questions and Answers
What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is a debt consolidation and repayment plan. Most of your debts are consolidated into a single payment made at regular intervals determined by the court. You are protected from creditors by the courts until your debts are paid and you are back on track for financial success.
Should I File Chapter 13?
Most clients who choose to file Chapter 13 bankruptcy have a regular source of income and have money left over each month after subtracting their basic living expenses. In most cases, your monthly payment to creditors can be reduced while you keep all of your property.
Who Can File Chapter 13?
Chapter 13 is designed for those clients with a regular income. Your living expenses are subtracted from your income, and you pay the difference – your excess income – to the Chapter 13 trustee to distribute among your creditors.
How Are Taxes Treated In Chapter 13?
In Chapter 13, you pay back taxes – most of the time without interest – in your payment plan. In some circumstances, you pay only a portion of the taxes owed.
Can Property Foreclosure Be Stopped?
Chapter 13 debt consolidation stops foreclosure. Back payments are paid in the payment plan, and future regular payments are paid either directly to the mortgage company or in some cases paid through your Chapter 13 plan.
How Does Chapter 13 Affect Cosigners?
All cosigners on consumer debts can be protected from creditors while the debts are being paid under a Chapter 13 plan by the person filing the case.
Must All Debts Be Paid In Full?
No. In certain cases, depending on your monthly income, expenses, and types of debts, you may pay back as little as zero cents on the dollar on most unsecured debts.
Do Both Spouses Have To File?
Both spouses may file, but it is not a requirement that both file.
Do I Lose My Property If I File Chapter 13?
No. You can keep all of your property or you can surrender some of your property and keep other property, depending on the provisions of your Chapter 13 plan.
How Long Does A Chapter 13 Case Last?
A Chapter 13 case generally lasts from three to five years. A Chapter 13 case may not last longer than five years, but may be completed sooner than three years.
I’ve Gone To My Creditors’ Meeting. What Happens Next In My Case?
You will receive a letter from the trustee’s office:
- A Favorable Recommendation:
- Trustee approves of the plan as written.
- The Court usually approves your plan.
- An Unfavorable Recommendation:
- Trustee will request more information.
- We will contact you if we need anything further from you.
- Don’t let the trustee’s objection upset you, they are common.
- Remember that the trustee is not the judge.
Then there will be a confirmation hearing:
- Peter or Jeri will represent you.
- You must be present for your hearing.
- Do not be alarmed.
- The Court confirms your plan at this hearing.
- Continue to make your plan payments to the trustee’s office.
Where Is My Bankruptcy 341 Creditors Meeting?
The Bankruptcy Court for the Eastern District of Michigan has four locations for Section 341 Court Hearings:
The Detroit Bankruptcy Court has its meetings at 211 West Fort Street, Suite 315 Detroit, Michigan 48226:
The Detroit location covers all cases filed in Jackson*, Lenawee*, Macomb, Monroe*, Oakland, St. Clair, Sanilac, Washtenaw*, and Wayne counties.
The Ann Arbor Hearing Room has meetings at the U.S. District Court of Ann Arbor 200 E. Liberty Street Ann Arbor, MI 48108:
The Ann Arbor Hearing Room covers Chapter 7 Hearings only for Parts of Jackson, Lenawee, Monroe and Washtenaw counties. All other hearings or 341 hearings for Chapter 13 cases are held in Detroit.
The Flint Bankruptcy Court has its meetings at 600 Church Street Room G-19 Flint, Michigan 48502:
The Flint location covers all cases filed in Genesee, Lapeer, Livingston, and Shiawassee counties.
The Bay City Bankruptcy Court has its meetings at 101 First Street, Bay City, Suite 103, Michigan 48708:
The Bay City location covers all cases filed in Alcona, Alpena, Arenac, Bay, Cheboygan, Clare, Crawford, Gladwin, Gratiot, Huron, Iosco, Isabella, Midland, Montmorency, Ogemaw, Oscoda, Otsego, Presque Isle, Roscommon, Saginaw, and Tuscola counties.
Where Do I Send My Chapter 13 Payments?
In order to make the Chapter 13 bankruptcy process as easy as possible, we will attempt to have your bankruptcy payments process as a payroll deduction.
However, you are responsible for making all such payments until your Payment Order becomes effective. This means each and every time you get paid you need to send a payment to the bankruptcy trustee. Please remember, if these payments are not made, you will lose the protection of the bankruptcy court. If these payments ever stop in the future, it is your obligation to make them and notify our office immediately.
Where your payments are sent depends on who your bankruptcy trustee is:
David Wm Ruskin
1593 Reliable Parkway
Chicago, IL 60686-0015
Tammy Lynn Terry
PO Box 2039
Memphis, TN 38101-2039
Krispen S. Carroll
PO Box 2018
Memphis, TN 38108-2018
Carl L. Bekofske
PO Box 2175
Memphis, TN 38101
Make sure you ALWAYS Include your case number on your payment to properly credit your account. Always send your payments to the above address, as the trustee’s local address cannot receive your payments.
Where Do I Send My Tax Returns And Refunds In Chapter 13 Bankruptcy?
The number one reason most Chapter 13 cases are dismissed without discharge is because of the failure to submit Federal Tax Returns and Federal Refunds to the Chapter 13 Trustee. In your Chapter 13 Plan, you are required to submit your Federal Tax Return and any Federal Refund you receive to your Chapter 13 Trustee. Even if you do not receive a Federal Refund, you must submit your Federal Tax Return to the Chapter 13 Trustee.
Depending on who your Chapter 13 trustee is, you should send a copy of the return and refund to the following addresses:
Please mail a copy of your federal tax return to:
David Wm Ruskin
1100 Travelers Tower
26555 Evergreen Road
Southfield, MI 48076-4251
Tammy Lynn Terry
535 Griswold
Suite 2100
Detroit, MI 48226
Krispen S. Carroll
719 Griswold
1100 Dime Building
Detroit, MI 48226
Carl L. Bekofske
400 N. Saginaw Street
Suite 331
Flint, MI 48502
Please mail your federal refund to:
David Wm Ruskin
1593 Reliable Parkway
Chicago, IL 60686-0015
Tammy Lynn Terry
PO Box 2039
Memphis, TN 38101-2039
Krispen S. Carroll
PO Box 2018
Memphis, TN 38108-2018
Carl L. Bekofske
PO Box 2175
Memphis, TN 38101
Make your payment payable to your Chapter 13 trustee. Make sure to write your case number, “Federal Tax Refund,” and the current year of your federal tax refund on your payment.
I Am Keeping My Home. What Do I Need To Do?
Make sure your Chapter 13 plan reflects that you are keeping your home.
You make all of your payments exactly as stated in your Chapter 13 plan.
- Do not wait for bills.
- The Court will not tolerate missed or late payments.
If you filed Chapter 7, then you will need to handle payment directly with your lender or you may fall into foreclosure.
I Am Not Keeping My Home. What Will Happen To It?
If your home is in foreclosure or you are surrendering the property, then keep the following in mind:
- You might want to hire a lawyer to defend your foreclosure or inform you of your rights.
- These services are not part of your bankruptcy retainer with our firm.
If you do not hire a lawyer to help you with the foreclosure, please keep in mind that there will be a date when you have to vacate the home.
- First, the mortgage company will need to get permission from the Bankruptcy Court to continue foreclosure. That permission is called an “Order Granting Relief from the Automatic Stay.”
- In Florida:
- The court should send you a notice of when you have to move.
- The notice you are looking for is called an “Order for Sale.”
- Be sure to vacate prior to the date on the Order for Sale.
- In Michigan:
- The matter is more complicated and you should hire a lawyer.
Do not worry about having to surrender your keys or door openers.
- Do not send keys or openers to our offices.
The Debt Is Discharged, But The Mortgage Remains?
First, understand the three documents relating to the ownership of your home:
- Deed – This is the document that says who owns the home
- Mortgage – This is the document that allows the bank to foreclose on your home if you are not current
- Note – This is the document that makes you personally responsible for the money owed on the home
Typical fFactual Scenario:
- You have now received a discharge in a Chapter 7 bankruptcy.
- You did not reaffirm the mortgage (we almost always advise not reaffirming mortgages).
- You still have the property.
- You have continued to make payments according to the terms of the original loan.
Question:
How Can This Be?
Answer:
It’s actually very common, and it gives you the best of both worlds.
In a nutshell:
The underlying debt (the note) has been discharged, but the creditor still has a lien on the collateral (the mortgage.) As long as you continue to make the payments, they can’t bother you or the collateral (the deed is still in your name and you still own the property). If you ever default, then they can foreclose, but they can never claim that you owe them any money. That would be a violation of the bankruptcy discharge, for which you could file suit against them!
In a little more detail:
When you took out this loan, you signed papers that gave the creditor two different rights:
(1) to collect money from you; and
(2) to take the property away from you if you failed to make the payments (or if you otherwise defaulted on the terms of the loan).
The bankruptcy discharge eliminates their right to demand money from you, but in most cases, it does not affect the lien that they have on your property. This creates the interesting situation described above, where for most purposes the mortgage remains in effect, but you now have the absolute right to walk away at any time if that turns out to be the right thing for you. This is especially true if you have always been current on the payments for this particular loan. They are not allowed to foreclose unless you are in default, and despite what your contract might say, the law does not consider bankruptcy to be a default for these purposes. However, even if you did default in the past, if they continue to accept payments from you then legally they have waived the default, which puts you right back into the driver’s seat.
The bottom line:
If you want to keep the property, just keep making the payments and be sure to comply with any other contractual terms, such as paying local property taxes and maintaining valid insurance. If you eventually pay off the loan you will own the property outright. But if you ever decide that paying for the property is not in your best interest, whether that’s because you can’t sell it for enough to pay off the mortgage(s), or because you simply can’t afford to make the payments, you can simply walk away and there’s nothing the mortgage company can say about it. They can still foreclose under the mortgage, but that’s all they can do.
Is Debt Discharged In Bankruptcy Taxable?
This is one of the most common questions people have when considering to file bankruptcy, and the short answer is… NO!
Still, every year our office still gets hundreds of phone calls at tax time from people who just received a 1099-A or 1099-C.
First, if a creditor has canceled a debt of $600.00 or more, they may send you a 1099-C, and if you did not file bankruptcy, you could very well owe taxes on the debt that was forgiven. If you did not file bankruptcy, this income may be taxable income; however, as explained in IRS Publication 4681, you do not need to pay taxes on debt discharged in bankruptcy.
If your Form 1099 debt is subject to an exception found in IRS Publication 4681, you’re off the hook. However, you still need to fill out IRS Form 982 and attach it to your federal tax returns. If you don’t, the IRS could assume you are illegally failing to report income.
If you’re still not sure whether you need to include your Form 1099 debt, consider talking to a tax preparer. It can often be a complicated analysis that requires professional help.
The taxable consequences of settling debt are just another reason why sometimes filing bankruptcy is the right thing to do. We offer a free, confidential consultation that will help you determine if debt settlement or bankruptcy may be right for you.
What Debts Will Not Be Discharged?
Here are some of the most common types of debts that are not discharged in bankruptcy or may be held non-dischargeable:
- Debts for most new tax debt
- Debts incurred to pay non-dischargeable debts
- Debts that are domestic support obligations
- Debts for student loans
- Debts for fines, penalties, forfeitures, or criminal restitution obligations
- Debts for personal injuries or death caused by the debtor’s operation of a motor vehicle, vessel, or aircraft while intoxicated
- Debts which were not properly disclosed by the debtor
- Debts that the bankruptcy court specifically has decided or will decide in this bankruptcy case are not discharged
- Debts for which the debtor has given up the discharge protections by signing a reaffirmation agreement in compliance with the Bankruptcy Code requirements for reaffirmation of debts
- Debts owed to certain pension, profit sharing, stock bonus, other retirement plans, or to the Thrift Savings Plan for federal employees for certain types of loans from these plans
- Debts incurred on the basis of fraudulent acts
- A debt from willful and malicious injury to another or another’s property, or an intentional tort (conversion, assault, battery, etc.)
- Debts from embezzlement, larceny or breach of trust
- Debts arising from a marital property settlement agreement or divorce decree.
If you have any of these debts, it is very important that you discuss these debts with us so we can fully advise you on how the bankruptcy will affect the status of these debts in your bankruptcy.
Why Am I Getting All Of This Paperwork In The Mail?
Do not worry about any mail you receive from the court, trustee or creditors. We receive copies of all correspondence from the trustee, the court and all the creditors related to your case.
- If we need any information from you, we will contact you.
- If there is anything you need to do, we will contact you.
You do not need to inform us of documents you receive from the trustee or the court. We want to do an excellent job for you, but please keep in mind that numerous phone calls actually slow us down from helping you.
How Long Am I Supposed To Pay The Trustee?
You will make your monthly payments until your plan is complete (usually between 36 and 60 months).
You will make your payments to your trustee’s office. We can arrange for automatic deductions from your paycheck or from your bank account. Please let us know if an automatic payment method will help you.
What Happens If I Miss A Payment To The Trustee?
The trustee will send you and us a letter explaining the default and the time period to cure it.
You will need to cure the default or the judge will dismiss your case.
If your circumstances have changed and you cannot make your payments, please let us know immediately and we may be able to file a motion to assist you.
- Telling us before you miss a payment is much more helpful than after you have missed it. Please keep this in mind.
I Do Not Understand The Trustee’s Questions. What Is The Purpose Of Them?
The 341 Meeting (Meeting of the Creditors) is the trustee’s chance to examine the petition you filed with the court and compare it to your oral answers on the record.
As long as you were truthful with the trustee, you have nothing to worry about.
Who May I Call With Additional Questions?
If you have additional questions that are not answered here, please contact Phoenix Law in Livonia at 734-779-9999 and ask to speak to Peter or Jeri. You can also set up a free consultation by completing our contact form. Remember, we are here to help you!