Many individuals find themselves facing financial distress. The U.S. Bankruptcy Code provisions serve as a crucial framework for individuals seeking a fresh start. Among the various pathways available, Chapter 13 of the Bankruptcy Code has emerged as an extremely useful tool for eligible individuals. Chapter 13 bankruptcy, also known as a “wage earner’s plan”, is a type of bankruptcy that is available to individuals (or joint debtors) who have a regular source of income. It enables individuals to keep valuable assets while making structured payments to creditors over a specified period.
Summary of Chapter 13 Bankruptcy In Massachusetts
The way a Chapter 13 Bankruptcy plan works is that the individual who is in financial trouble proposes a repayment plan to make installments to creditors over three to five years. Upon the initial filing of this type of bankruptcy, an automatic stay halts most collection actions against the individual or the individual debtor’s property. There are debt limits for unsecured and secured debts. This will be discussed in greater detail below. A Chapter 13 trustee will be appointed to evaluate and collect the payments owed on the repayment plan and will be the one to distribute them to the creditors. Upon completion of the payment plan within the specified time period, most of the remaining debts will then be discharged.
The Process Involved In Chapter 13 Bankruptcy Plans
Chapter 13 Bankruptcies involve the following process:
- Credit Counseling: Before you can file for Chapter 13 bankruptcy, you must complete a credit counseling course from an approved agency within 180 days before filing. This session can often be done online or over the phone.
- Filing the Petition: The bankruptcy process officially starts when you file a bankruptcy petition with the bankruptcy court serving your area of Massachusetts. Along with the petition, you must file several other documents, such as schedules of assets and liabilities, a schedule of current income and expenditures, a schedule of executed contracts, unexpired leases, and a statement of financial affairs.
- Paying the Filing Fee: There is a fee to file for Chapter 13 bankruptcy, which can sometimes be paid in installments. If you cannot afford the fee, you can request a waiver.
- The Chapter 13 Repayment Plan: Within 14 days of filing your petition, you must file a proposed repayment plan. This plan outlines how you intend to pay back your debts over a period of three to five years. Your income and the types of debt you owe will influence your repayment plan.
- Meeting of Creditors (341 Meeting): Approximately a month after filing, a meeting of creditors will be held. During this meeting, the trustee and your creditors can ask you questions about your financial situation and the proposed repayment plan.
- Confirmation Hearing: After the meeting of creditors, there will be a confirmation hearing where the court decides whether to approve your repayment plan. Creditors can object to the plan during this hearing.
- Making Payments: Once your plan is approved, you will start making payments to the trustee, who will then distribute the funds to your creditors. During this period, you must keep up with your mortgage, car, and other payments.
- Completion of the Plan: After you have made all the payments under your plan, you will receive a discharge of the remaining dischargeable debts.
- Financial Management Course: Before you receive a discharge, you must complete a personal financial management instructional course from an approved agency.
- Discharge of Remaining Debts: After successfully completing your repayment plan and the financial management course, you will receive a discharge of most of the remaining debts.
Who Is Eligible To File For Chapter 13 Bankruptcy
To be eligible to file for a Chapter 13 bankruptcy, you must demonstrate that you have a regular stream of income. Your total combined unsecured and secured debts as of June 21, 2022, is $2,750,000 (but could revert to an earlier threshold at some point in 2024). Applicants must be up to date on all of their tax filings, and you are not allowed to have had any recent bankruptcies – No discharge in a prior Chapter 13 case can have been filed within the last two years or a Chapter 7 case within the last four years. You must have completed the credit counseling class from an approved agency within 180 days of your filing for bankruptcy.
Advantages and Disadvantages of Chapter 13 Bankruptcy Plan
As with most things, there are advantages, as well as certain disadvantages, to a Chapter 13 Bankruptcy. The advantages of Chapter 13 bankruptcy include asset retention – meaning that this type of plan allows individuals to keep their home and other assets. In addition, debts are consolidated into one manageable payment plan, and these plans are based on individual income and expenses. Chapter 13 plans also protect co-signers on consumer debts. Lastly, Chapter 13 allows for the potential to lower the payments on certain secured debts (known as “the cramdown provision”).
There are also disadvantages to filing a Chapter 13 bankruptcy. There is an impact on credit because the bankruptcy remains on credit reports for seven years. In addition, certain debts like alimony, child support, and student loans are not discharged. There is a commitment to the plan put in place because it will span from three to five years. Lastly, it will require adherence to a strict budget and will involve filing costs, as well as attorney fees.
Specific Massachusetts Provisions With Respect To Chapter 13
As part of the bankruptcy process, you must complete the Massachusetts bankruptcy Means Test. The Means Test calculates your average monthly income (AMI), annual median income, and disposable income. Consequently, each of these figures is important for a Massachusetts Chapter 13 case.
Takeaways
Chapter 13 bankruptcy offers a pathway for individuals with regular income in Massachusetts to manage and eventually overcome debt. However, it requires a commitment to a long-term payment plan and adherence to strict budgeting, along with a potential impact on creditworthiness. Chapter 13 bankruptcy cases are very complex. Therefore, hiring an attorney is recommended even though it is not required. It is advisable to hire an experienced Massachusetts bankruptcy attorney who can help you understand the bankruptcy laws and determine if you should file for bankruptcy based on your circumstances.
The law firm of Logan A. Weinkauf can assist you with all of the required paperwork and deadlines under Chapter 13, can be there to support you through the formal proceedings, and will guide you through the entire process so that your rights will be protected. Contact Logan A. Weinkauf for a free initial consultation, and let him help you start your road to recovery.
Weinkauf, P.C. provides experienced and tailored legal guidance and services to clients filing for Chapter 13 bankruptcy throughout New Bedford, Mashpee, Cape Cod, Barnstable County, and Bristol County MA.