George J. Nader, Attorney at Law - Riley & Dever, P.C.

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Massachusetts Chapter 13 Bankruptcy Lawyer

Chapter 13 Bankruptcy and Information

George J. Nader, Attorney at Law - Chapter 13 Bankruptcy

The underlying premise of Chapter 13 Bankruptcy is that you have sufficient income to not only meet all of their cost of living expenses but also have money left over to pay down your debts. The excess income ("disposable income") gets paid by you to your Chapter 13 Trustee once a month for the life of your Plan (3 to 5 years depending on medium income requirements).

Monthly Re-payment Plans

In Chapter 13 Bankruptcy you get to retain all of your property, but must make monthly payments to a Chapter 13 Trustee for the life of their Plan (3-5 years) . From these payments the Trustee must pay in full:

  • Past due amounts on defaulted secured debt (mortgages, car loans, etc.)
  • Priority debts (recent taxes, past due child support, etc.)

What is left of the payment goes to your unsecured creditors (credit cards, medical debt, etc.) often for a fraction or percentage of their outstanding debt.

For your proposed monthly payment to be accepted by the court, the total payout must equal to what the liquidation value of your estate would have been if a Chapter 7 had been filed. You must also pay to the Trustee all of his disposable income each month.

Chapter 13 is only available to individuals with regular income from any source (including sole proprietorships), not just wages. Partnerships and corporations are not eligible for chapter 13 relief. The purpose of chapter 13 is to help individual debtors reorganize their finances by making payments to creditors through a Chapter 13 plan for a 3 to 5 year period. Debtors may not have unsecured debts in excess of $307,675, nor secured debts in excess of $922,975 to qualify for Chapter 13.

The Automatic Stay

Filing a bankruptcy petition under Chapter 13 "automatically stays" (stops) most collection actions against the debtor or the debtor’s property, such as foreclosures, lawsuits, and sheriff seizures. The stay arises automatically by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payments. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by the debtor. The Automatic Stay is a powerful legal tool which enables you to regain control over your personal financial affairs and property while your bankruptcy case is pending and a fresh start is sought.

The Chapter 13 Process

A Chapter 13 bankruptcy case begins with the filing a petition for relief pursuant to the United States Bankruptcy Code. The Bankruptcy Petition is filed with the Bankruptcy Court in the district where the individual debtor lives for the majority of the time during the 180 days immediately prior to the filing of the Bankruptcy Petition. The debtor, in addition to the bankruptcy petition, must also file schedules listing all assets and all liabilities, an income and expense report, a statement of financial affairs and a Chapter 13 Plan. If only one spouse files, the income and expenses of the non-filing spouse must be included in the debtor’s schedules, which numbers are used to determine the amount of the Chapter 13 plan payment.

Upon the commencement of the Chapter 13 bankruptcy case, a Chapter 13 Trustee is appointed to administer the case. The initial role of the Chapter 13 Trustee is to ensure the Chapter 13 Plan is proper and proposed in good faith, and that the Chapter 13 debtor(s) have filed all the necessary documents with the Trustee and the Bankruptcy Court required by the rules. Once the Chapter 13 Plan is confirmed, the Chapter 13 Trustee collects all plan payments from the debtor and makes distributions to the debtor’s creditors pursuant to the plan. The Chapter 13 Trustee conducts a meeting of creditors (341(a) hearing), and the debtor is examined under oath concerning the schedules, statement of financial affairs and the Chapter 13 plan. Creditors may attend the meeting of creditors and ask questions. Debtors (both husband and wife if jointly filed) must attend the meeting. Problems with the plan are typically resolved during or shortly after the creditors’ meeting. If there are no formal plan objections, the debtor may proceed towards confirmation (Court approval) of the Chapter 13 Plan.

The Chapter 13 Plan

Curing Defaults On Mortgages Over 3-5 Year Payment Plan

Chapter 13 is the ideal vehicle for a debtor facing foreclosure. The filing of a Chapter 13 bankruptcy case results in an "automatic stay" which can stop a foreclosure sale. By commencing a case under Chapter 13 a debtor may be able to permanently stop any foreclosure sale by providing to cure any defaults on the mortgage(s) within a reasonable period of time, 3-5 years, in the Chapter 13 Plan.

Cram Down/Strip Down of Mortgages 2nd and 3rd Mortgages in Chapter 13

This Cram Down/Strip Down option cannot be employed to reduce the Secured Claim of the holder of any first mortgage on your residence. However, if you have a second (or third) mortgages on your house, and the value of the residence is less than the balance due on the first mortgage, you can Strip Off the second (and third) mortgages and treat them as an unsecured claim under your Chapter 13 Plan (same as the credit cards and pay a percentage on the dollar over the term of the Plan). However, you can only do a second (or third) mortgage Strip Off if there is not one single dollar of house value to "secure" it, and you stay in your Chapter 13 until its completion.

Examples of Strip Down applied to a second mortgage

Two examples will illustrate how Strip Off can be applied to a $50,000.00 second mortgage/home equity loan on a $300,000.00 residence.

Example #1
If the first mortgage has a balance due of $295,000.00, then the entire $50,000.00 second mortgage cannot be Stripped Off, because there is $5,000.00 worth of equity (ie. $300,000.00 value minus $295,000.00 first mortgage equals $5,000.00 equity) for the second mortgage to attach to.

Example #2
However, if the balance due on the first mortgage were $305,000.00, the entire $50,000.00 second mortgage could be Stripped Off, as there is no equity in the residence for it to attach to.

Obviously, if a Second (or Third) mortgage can be Stripped Off it can dramatically improve your financial position as they would no longer have to make any payments to that second mortgage holder. In this instance the amount owed to the Second (or Third) mortgage holder would be treated as any other unsecured debt and repaid through the Plan payments made to your Chapter 13 Trustee, often resulting in the mortgage holder receiving only a fraction of the amount actually due.

The debtor is required to file a Chapter 13 Plan 15 days after the filing of the Bankruptcy Petition. The debtor(s) must commit to pay into the Chapter 13 Plan all projected "disposable income" for the duration of the plan. Disposable income is defined as income not reasonably necessary for the maintenance or support of the debtor or dependents. If the debtor operates a business, disposable income is defined as excluding those amounts which are necessary for the payment of ordinary operating expenses.

As stated above, the Chapter 13 plan dictates which creditors are paid and how much of their allowed claim they are paid. While secured creditors are specifically provided for in a Chapter 13 plan, unsecured creditors are not. Unsecured creditors will only receive a distribution from the Chapter 13 Plan if a proof of claim is timely filed with the bankruptcy court. Unsecured creditors have to file their proof of claim within 90 days after the first date set for the meeting of creditors. A governmental unit, however, may file a proof of claim until the expiration of 180 days from the date the case is filed.

The Bankruptcy Code affords both the Chapter 13 trustee and the debtor’s creditors the opportunity to object to the confirmation of the Chapter 13 plan. If the trustee or a creditor objects to confirmation of the Chapter 13 plan, a hearing is scheduled before the Bankruptcy Court. There are a number of objections that can be made by trustees and creditors, but the most frequent objections are: (1) the total plan payments are less than creditors would receive if the debtor’s assets were liquidated under Chapter 7 of the Bankruptcy Code; or (2) the debtor’s plan does not commit all of the debtor’s projected net disposable income for the minimum three-year period. If the objection is sustained and the plan is not confirmed, the debtor may attempt to modify the plan, convert the case to a Chapter 7, or allow the bankruptcy case to be dismissed.

On occasion, changed circumstances will affect a debtor’s ability to make plan payments, or a debtor may have inadvertently omitted a creditor. In such instances, the plan may be modified either before or after confirmation. A motion to modify the Chapter 13 plan may be made by the debtor, an unsecured creditor or the trustee.

The provisions of a confirmed plan are binding on all interested parties. Creditors must refrain from any collection activities for the duration of the Chapter 13 Plan. The debtor must continue to make the plan payments in a timely fashion for the life of the plan. A failure of either party to the plan (creditor or debtor) will result in negative consequences. For the debtor, a breach of the plan might lead to dismissal or a motion for relief from the automatic stay, which, if granted will allow a creditor to go forward with collection efforts including foreclosure or repossession.

The Discharge

The Chapter 13 debtor is entitled to a Discharge upon successful completion of all payments under the Chapter 13 Plan. The Discharge releases the debtor from all claims provided for in the plan or disallowed by the court. It is the creditor’s duty to file a claim in the case. Those creditors who were provided for in full or in part under the Chapter 13 Plan, even if not paid because they failed to file a claim, may not initiate or continue legal action to collect the discharged obligations.

In return for adhering to the requirements of a repayment plan for three to five years, the debtor receives a Discharge of all debts provided for by the plan or disallowed, except certain long term obligations (such as a home mortgage), debts for alimony or child support, debts for most student loans, debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs, and debts for restitution or a criminal fine, and other non-dischargeable debts set forth in the Bankruptcy Code. To the extent that these types of debts are not fully paid pursuant to the Chapter 13 Plan, the debtor will still be responsible for these debts after the Chapter 13 case has successfully concluded.

This Law Firm proudly practices Bankruptcy Law, helping clients file cases under Chapters 7 and 13. According to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, we are considered to be a Debt Relief Agency.

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George J. Nader,
Attorney at Law

Riley & Dever, P.C.
210 Broadway, Suite 101
Lynnfield, MA 01940
Phone: (781) 581-9880
Fax: (781) 581-7301

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