The bankruptcy process is started by the filing of a Bankruptcy Petition. In a Chapter 13 Bankruptcy, the Court will assign a Bankruptcy Trustee and set a date for the First Meeting of Creditors. Notices will be sent to all Creditors listed in the Bankruptcy Schedules. The Debtor and his or her counsel appear before the Bankruptcy Trustee for the First Meeting of Creditors. Creditors are invited to attend as well. Generally, the Debtor is sworn in and the Bankruptcy Trustee asks various questions about the Bankruptcy Petition including whether or not it is a true and correct copy of the Bankruptcy Petition and Schedules, whether all assets have been included, all debts have been disclosed, and if the Petition, Schedules and other documents are complete and accurate. The Chapter 13 Trustee is often most concerned about the Debtor=s income and expenses which determine the payment to the Plan and whether the Plan is in compliance with the law. Once satisfied that this Plan is appropriate, the Trustee will recommend confirmation by the Court.
Proposed Plan and Confirmation – The Debtor must propose a Chapter 13 Plan pursuant in which he will make monthly payments to the Chapter 13 Trustee. The Chapter 13 Debtor will receive a discharge upon making all payments due under the Plan.
Plan Payments – The payment made by the Debtor to the Trustee is referred to as the APlan Payment.@ Calculation of the Plan Payment is quite complex. The basic requirements are that the Debtor:
- Pay to the trustee all of his disposable monthly income which is generally defined as total gross income less reasonable and necessary monthly living expenses.
- The amount paid into the Plan must be sufficient to pay the Secured Claims in full, except for secured payments that would otherwise extend beyond the length of the Plan such as a home mortgage or auto loan.
- The amount paid into the Plan must be sufficient to pay the Priority Claims in full.
- The amount paid into the Plan must be sufficient to pay the Unsecured Creditors at least as much as they would receive in a Chapter 7 Liquidation.
Payments by the Trustee – The Trustee is required to pay Creditor claims in the following order:
- Attorney fees and costs to the Debtor’s attorney not previously paid.
- Secured Creditors such as mortgage arrears and auto loans.
- Priority Unsecured Creditors (child support, maintenance/alimony, most income taxes, property taxes, and other obligations specified by the Bankruptcy Code).
- General Unsecured Creditors (credit cards, personal loans, medical bills etc.).
Plan Term – The length of the Plan is dependent on a variety of factors. However, if the General Unsecured Creditors will not be paid in full, the Plan will be for a period between 36 and 60 months unless the unsecured creditors are paid in full prior to that time.
Creditors and Claims – All creditors are required to file a proof of claim if they wish to be paid. Secured Creditors who fail to file claims may still retain their security interest but do not get paid anything from the Plan. Therefore, a Debtor may file a proof of claim on behalf of a Secured Creditor that fails to do so. However, an unsecured creditor who fails to file a claim will not receive any amounts paid under the Plan and will be discharged without receiving any payment.