Debtor obligations when filing Chapter 13 bankruptcy
When filing for Chapter 13 bankruptcy, debtors may expect the courts to remove all financial obligations to creditors. Though bankruptcy helps minimize or erase some of these debts, Chapter 13 does not discharge all obligations.
In addition to repaying creditors, debtors must also satisfy qualification and filing obligations to declare Chapter 13 bankruptcy. What are all the expectations for filing Chapter 13 bankruptcy?
Rules for filing Chapter 13 bankruptcy
To file for Chapter 13 bankruptcy, an individual must prepare several documents, certificates and petitions. Bankruptcy courts require the following documents:
- Detailed information on all sources of income
- List of creditors
- List of real and personal property
- Monthly living expenses
- Credit counseling certificate
- Copy of most recent tax return and proof that the individual filed taxes the previous four years
- A Chapter 13 repayment plan
The debtor must also pay a filing fee within 120 days or risk the dismissal of their case. Once the debtor completes these steps, the courts take over.
Obligations to creditors
Within 30 days of filing, debtors must begin making payments on their repayment plan. Designed by a credit counselor before filing, debtors must complete these payment plans within three to five years. The court appoints a trustee to collect and distribute these payments in order of priority:
- Administrative fees: Debtors pay attorney and trustee fees first.
- Priority debts: The plan must then pay child support, alimony, employee wages, tax debt, and contributions to employee benefit plans in full.
- Surviving debts: Debtors must continue to pay surviving debts, including mortgages, home equity loans, vehicle loans, and personal loans.
- Secured debts: The plan must account for other secured debts, including tax liens, judicial liens, statutory liens, and promissory notes regarding personal assets.
- Unsecured creditors: All disposable income must go toward unsecured debts, including credit cards, back rent, medical bills, and union dues.
If a debtor ever violates the court-approved plan, the court may dismiss a bankruptcy case completely. If the filer continues making child support payments and does not incur new debt, they should have few difficulties getting through bankruptcy.
Consider legal counsel
People who file for Chapter 13 find success working with a local lawyer familiar with New York bankruptcy law. An attorney can recommend credit counselors, help organize paperwork and work with courts to define terms.