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Written by Canterbury Law Group

What Is Credit and Debt Counseling in Bankruptcy?

What Is Credit and Debt Counseling in Bankruptcy?

Credit Counseling: The “First” Course

Before filing for bankruptcy, you must be certain that it is the best option, as it can have serious and long-lasting effects on your credit, possessions, and income. The first course, pre-filing credit counseling, helps you determine whether bankruptcy is the best option. In this course, you will evaluate your financial situation and investigate alternative repayment options. If, after completing the course, it still makes sense to file for bankruptcy, you will submit a certificate of course completion along with your petition and schedules to demonstrate that you fulfilled the education requirement (the official paperwork that initiates the case). You can take the course online or over the phone and most people complete it in an hour or two.

Educating Debtors: The “Second” Course

You’ll take the post-filing debtor education course (or “second” class) after you file your bankruptcy. The second course will provide you with financial management tools that you’ll be able to rely on after your bankruptcy is over.

In a Chapter 7 bankruptcy, you must file your completion certificate with the court no later than 60 days after the date first set for the 341 meeting of creditors (the hearing that all bankruptcy filers must attend) (the hearing that all bankruptcy filers must attend). The court will remind you by sending a notice entitled “Notice of Requirement to File a Certification of Completion of Course in Personal Financial Management.” Chapter 11, 12, and 13 filers can submit the completion certificate anytime before making the final payment under the repayment plan.

Not only is it easy to forget to complete the coursework, but failure to submit the certificate will result in a fine. The court will dismiss your lawsuit without discharging (wiping out) your qualifying debt, and you’ll have to refund the filing fee to reopen it. Worse yet, in many courts, you won’t be able to file the certificate until you file a motion asking the court to accept the late-filed certificate and the judge grants your request (and you might have to file an additional motion asking for your discharge) (and you might have to file an additional motion asking for your discharge).

Who Must Complete the Courses?

All individuals who file a Chapter 7, 11, 12, or 13 bankruptcy must complete a credit counseling class and a debtor education training course before receiving debt relief—even if the individual’s debts are primarily business debts.

This regulation involves a husband and wife filing jointly (together) (together). Each must satisfy the condition. In contrast, business entities are exempt, including partnerships, limited liability companies, and corporations.

You might be exempt from the requirement if you must file an emergency case, or you’re in a military zone. Nevertheless, such exceptions are uncommon.

To find a course that fits the requirements of the courts in your bankruptcy jurisdiction, visit the U.S. Trustee’s website and select from a list of recognized providers.

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Written by Canterbury Law Group

Emergency Bankruptcy Filing

Emergency Bankruptcy Filing

A swift bankruptcy petition can prevent imminent creditor action. Find out how quickly you may file an emergency bankruptcy filing online.

Sometimes it is necessary to quickly halt a creditor’s action. Filing for bankruptcy is beneficial. When you file a case, the court automatically issues a stay prohibiting most creditors from pursuing collection efforts (exceptions exist).

However, filling all the bankruptcy forms is not an easy task. If time is of the essence, you can use an expedient online bankruptcy filing process known as an emergency bankruptcy filing (or skeleton file) to obtain the automatic stay and submit the remaining documentation later.

Online Filing of Emergency Bankruptcy Forms

Upon completion, the average bankruptcy petition can easily exceed fifty pages. When facing a foreclosure auction, repossession, wage garnishment, collection action, or another time-sensitive issue, however, it may not be possible to complete all of the paperwork.

You have alternative options.

When you need to file bankruptcy quickly, you can file your forms online quickly. In addition, you can access online filing 24 hours a day, seven days a week, and you can begin the online filing procedure by uploading a small fraction of the required forms:

  • The petition for bankruptcy (the principal document containing identifying information, the chapter you’re filing under, and other general information)
  • the names and addresses of the creditors that will be mentioned in the bankruptcy schedules (commonly referred to as a creditor mailing list or mailing matrix; verify format requirements with your court).
  • a certificate indicating that you fulfilled the credit counseling requirement or a waiver request, and
  • Statement Regarding Your Social Security Numbers on Form B121.

You should also be prepared to pay a filing fee, submit a request for a fee waiver, or submit a request to pay the filing charge in installments.

Finalizing a Skeleton Bankruptcy Filing

Your skeleton bankruptcy case will be dismissed if you do not provide the extra documents within 14 days. Also, be aware that certain courts may request alternative forms. The prerequisites are outlined in the local rules posted on your court’s website.

Emergency Bankruptcy Filing Procedures

For an urgent filing, you need take the following steps:

  • Step 1: Contact the court clerk or visit the court’s website to determine which forms are required for an emergency filing.
  • Step 2: Complete the Individual Voluntary Petition for Bankruptcy.
  • Step 3: On the list of creditors, you will include the names and addresses of everyone you owe money to, along with collection agencies, sheriffs, attorneys, and anybody else attempting to collect debts from you. Use the address that appears on the most recent billing statement or court filing.
  • Step 4: Complete the form Your Statement Regarding Your Social Security Numbers.
  • Step 5: Complete any other paperwork required by the court (for instance, in some jurisdictions you must file a cover sheet and an order of dismissal that will be executed if you fail to submit the remaining documents).
  • Step 6: Submit the originals and the requisite number of copies with your fee, a fee waiver application, or a request to pay the fee in installments, along with a self-addressed envelope, to the court clerk. Save duplicates for your records.
  • Step 7: Submit the remaining forms within 14 days to prevent case dismissal.

Obtaining and Filling Out the Bankruptcy Forms

See Forms You Must File in Chapter 7 Bankruptcy for a complete list of Chapter 7 bankruptcy forms. See Completing the Bankruptcy Forms for information on each of these forms, as well as basic instructions on how to complete them.

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Written by Canterbury Law Group

Collecting Business Debts

Collecting Business Debts

You can increase your chances of getting paid by contacting clients who are facing collections.

When it’s time to get paid, a small business owner may face their biggest challenge yet. Fortunately, you can reduce late payments and build a business radar that alerts you when an account is on its way to collections with a little advance planning. By maintaining open lines of communication and assisting clients who are experiencing financial difficulties as they get through a difficult time, you might gain loyal clients for life.

Customers who are slow to pay typically fall into three categories:

  • Customers who want to pay but are unable to do so on time due to legitimate financial difficulties.
  • Customers who favor to juggle or postpone payments.
  • Customers who will take any action necessary to avoid making a payment.

There is hope for the first two categories. You might be able to control these debts and persuade the debtors to pay in full or in part. Regarding the final group, you must identify it as soon as you can and take serious action, perhaps handing the account over to a collections agency (discussed below).

No matter what efforts you make to collect, the following rule is always true: As soon as you can, get to work, and continue working on the account until you are paid. Send bills promptly, and send new bills every month. There is no need to wait until the month’s end. Once an account is past due, send reminder letters as soon as possible.

More advice is offered below:

  • No harassing. Don’t bother those who owe you money, but let them know you are keeping an eye on the situation. You shouldn’t call a debtor more than once per day, and you shouldn’t ever leave messages that contain threats or disparaging remarks about the debtor.
  • Don’t get personal; be direct, listen, and direct. Calls should be brief and specific. According to Carol Frischer, a specialist in collections, your aim should be to stop the debtor from taking the call personally, or from equating the failure to pay as a failure in life. Always maintain your composure while maintaining a sense of urgency regarding getting paid.
  • Be imaginative. Ask the customer how much they can reasonably afford to pay if they are experiencing real financial difficulties. If the client accepts a new payment schedule in writing, take into account extending the payment deadline. Make sure the customer intends to abide by the agreement by calling the day before the following scheduled payment is due.
  • Write letters of demand. Send a series of escalating letters along with the phone calls. Save copies of all communications you have with the customer, and make sure to take notes during every call. If you send the case to a collections agency or take the client to court, you might need these.
  • Send letters using a collection agency. A fixed fee can be paid to a collection agency to have them send out several letters on your behalf. This is distinct from giving the debt to a collection agency.
  • Offer a substantial one-time discount. If a fairly large account goes unpaid for a prolonged period of time (let’s say six months), and you have doubts about ever being able to recover the debt, you might want to think about making a written offer for a time-limited, substantial discount to settle the matter. A mutual release and settlement, a formal document that discharges the debt, can be used to put an end to this.
  • Send the debt to a collection company. Your last resort is to send a debt to collections. Typically, a collection agency will pay you 50% of the money it collects. Of course, there are instances where half is preferable to nothing.
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Written by Canterbury Law Group

Can I keep My Business If I File Bankruptcy?

Can I keep My Business If I File Bankruptcy?

A struggling small business that files for bankruptcy may be able to thrive. Chapter 7, Chapter 13, or Chapter 11 bankruptcy may help you maintain your business depending on:

  • what the business does
  • the organization of the company
  • assets of the business, and
  • the amount of money that can be used to finance a repayment strategy.

Continue reading to discover more about the criteria used to assess the viability of a business bankruptcy. Additionally, a lot of business owners declare personal bankruptcy. Consider finding out how eliminating personal debt can assist you in maintaining your business.

Considerations for Continuing Your Business

Before continuing or ending your business, you should think about a number of factors. Here are a few important things to keep in mind.

Is the company profitable? You set out to run a successful business. If your company is consistently losing money, shutting down might be the best course of action. But let’s say you run a profitable business that is having trouble right now because of transient factors like the economy. It might make sense in that situation to continue operating despite the storm. Being realistic about preserving openness is crucial, though. Entrepreneurs frequently have an optimistic outlook and invest money in a project long after it’s time to give up.

Do the company’s assets outweigh its liabilities? It should go without saying that your company may be worth saving if its assets outweigh its liabilities and it is still profitable. It might be possible to keep the company afloat by reorganizing debt in bankruptcy (or eliminating it if you’re a sole proprietor). If bankruptcy is the only option, consider closing the company by selling the assets and settling the debt outside of bankruptcy (unless you want the Chapter 7 bankruptcy trustee to handle it for you in a transparent manner, in which case be sure to take into account the potential drawbacks discussed below). Most of the time, you’ll generate more money for your creditors while saving money. On the other hand, you probably already know that it might be time to cut your losses if the business is severely in the red.

Are business debts personally your responsibility? It might be more advantageous to keep your business operating while negotiating with creditors if you are personally responsible for its debts. This would prevent you from taking on additional debt. If the company is forced to close because there aren’t enough assets to cover liabilities, creditors may have no choice but to pursue your personal assets. Another typical strategy is for the business owner to declare bankruptcy under individual Chapter 7 in order to get rid of the personal guarantee.

Which Bankruptcy Type Should You File?

The structure of the business organization and the worth of the company’s assets will be the main determinants of the answer.

Why Businesses Don’t Bankruptcy Under Chapter 7 Often

Chapter 7 bankruptcy filings typically result in the closure of the company. Why? because a corporation or limited liability company, two examples of separate legal entities that own property, cannot be protected (LLC). The trustee merely liquidates the company’s assets, settles its debts, and closes the company.

Chapter 7 bankruptcy isn’t typically used to shut down businesses, though that’s not the only reason. Additional issues that might arise include the following:

The majority of business owners can wind down a company without assistance, saving themselves the extra expense of a bankruptcy attorney and filing fees.

Owners frequently have the ability to negotiate a better price for the assets than the bankruptcy trustee.

The partners’ individual assets are at risk when a partnership declares Chapter 7 bankruptcy.

Creditors have a quick forum to air grievances after filing for bankruptcy. In particular, the filing allows for litigation involving fraud, a partnership dispute, or an attempt to pierce the corporate veil (a lawsuit seeking to hold a shareholder personally responsible for the debts of the company).

Because of all of these factors—the main one being a transparent liquidation of the company’s assets—it is imperative to carefully weigh the risks and benefits of closing the business through bankruptcy.

Chapter 7 bankruptcy and the Sole Proprietor

A Chapter 7 bankruptcy may help you keep your business open if you’re a sole proprietor offering a particular service, despite the fact that it rarely benefits business owners. You might work as an accountant, a freelance writer, or a personal trainer, for example. Because the bankruptcy trustee cannot sell your ability to provide the service, this type of bankruptcy may be successful. This is how it goes.

Both personal and business debts fall under the purview of a sole proprietor. You will include all debt and discharge both types of qualifying debt when you file for Chapter 7 bankruptcy.

The relatively insignificant assets connected with a service-oriented business can also be safeguarded using bankruptcy exemptions. Exemptions, on the other hand, are rarely enough to cover sizable quantities of goods, machinery, or other commercial property. Sole proprietors with little to no business assets may find Chapter 7 to be a desirable option. It will eliminate the company’s debts and enable the owner to carry on with the service, keeping the business afloat.

Additionally, if your business debt exceeds your consumer debt, you can file for business bankruptcy and evade the means test. Therefore, it’s less likely that your new income will prevent you from being eligible for a Chapter 7 discharge if your business closes and you’re earning well working for someone else. However, it is possible, so consult a bankruptcy attorney before making any significant adjustments.

When You’re Compelled to File for Bankruptcy

Bankruptcy is typically a voluntary decision. However, it’s not always the case. In some cases, a debtor will be coerced into declaring bankruptcy by creditors.

Involuntary cases are extremely rare. The process is primarily used by creditors to compel an organization into bankruptcy. Because it’s difficult to meet the requirements to file an involuntary bankruptcy, it’s rarely used as evidence against an individual in consumer bankruptcy. In the majority of cases, several creditors must band together and decide to file a lawsuit against a debtor. If successful, the court names a bankruptcy trustee who will take control of every aspect of the company, sell its assets, and then divide the proceeds among the creditors.

Although it might be beneficial, many creditors would rather start their own collection processes. They maintain their capacity to take a bigger chunk of the company’s assets by doing this. A creditor who files for bankruptcy is more likely to have to split the proceeds with other creditors and receive a smaller payout or, in some cases, nothing at all.

It’s crucial to realize that a creditor might not be able to retain money received just before bankruptcy, particularly if it’s viewed as a preference claim that gives one bankruptcy creditor preference over another. However, a lot of creditors are prepared to assume the risk and, if necessary, return the money.

Similar to a voluntary action, the involuntary process starts with the filing of official bankruptcy forms with the court. Read Involuntary Bankruptcy if you want to learn more.

Chapter 13 Bankruptcy and the Sole Proprietor

A Chapter 13 bankruptcy case can only be filed by an individual. So you cannot file Chapter 13 on behalf of your company if it is a partnership, corporation, or limited liability company.

If you are a sole proprietor, just like with a Chapter 7 bankruptcy, you can include both personal and business debts in your Chapter 13 bankruptcy. If the sole proprietorship generates revenue, a Chapter 13 bankruptcy may be your best option. By making lower payments on nonpriority unsecured personal and business debts like credit card bills, utility bills, and personal loans, you might be able to keep the business operating.

However, if your sole proprietorship requires you to keep a lot of supplies, items, or pricey equipment on hand, you might run into a problem. Even though Chapter 13 bankruptcy permits you to keep your possessions, you must still be able to protect them with a bankruptcy exemption (and the majority of exemptions won’t cover important business assets). If not, you must pay the three- to five-year repayment plan’s value for the nonexempt assets. For instance, you would have to pay your creditors $2,500 per month for five years along with any other necessary sums if you owned $150,000 in nonexempt construction equipment.

Keeping all the property you require may not be possible if you don’t have enough income to cover a sizeable monthly plan payment because many business owners are strapped for cash.

Every Company in Chapter 11 Bankruptcy

In order to reorganize debts and continue operating, partnerships, corporations, and LLCs must file a Chapter 11 bankruptcy as opposed to a Chapter 13 bankruptcy. A Chapter 11 bankruptcy can also be filed by a sole proprietor. A repayment plan is used to pay creditors in Chapter 11 bankruptcy, which is similar to Chapter 13 bankruptcy in that the business keeps its assets. In contrast to a Chapter 13 bankruptcy, a straight Chapter 11 is typically much more difficult because the company must submit ongoing operating reports and the plan must be approved by the creditors. For the majority of small businesses, it is also prohibitively expensive.

Bankruptcy is a dreaded word by not just business owners, but families as well. It is not something that people want to go through, but it is the reality for many. With a business, sometimes you can put in all the hard work in the world but still end up filing for bankruptcy.

When starting a business, 30% will fail during the first two years. That number increases to 50% in the first five years, and 66% in the first 10 years. Only 25% will actually make it to at least 15 years.

With these stark statistics, there’s a likely chance that a new business may end up filing for bankruptcy. If that is the case, can your business survive, and if it does, can you get it back on track?

Getting the top bankruptcy attorneys in Scottsdale is one step to take. After that, consider some of the following points to help you get your business back on track.

Determine Which Type of Bankruptcy You’re Filing For

Depending on which bankruptcy you end up choosing to file, whether it be Chapter 7, Chapter 13, or Chapter 11, the case will significantly impact the outcome for your business.

For Chapter 7, your entire business is liquidated and sold off. You would then have to start over from scratch. In contrast, Chapter 13 bankruptcy will affect your company, but you will still have the debt to deal with. With Chapter 11 though, your business will continue to operate daily as your case pushes through the bankruptcy process and a reorganization plan is approved.

Understand What Went Wrong

One of the most important things to focus on after going through the bankruptcy process is to determine what went wrong. One of failure’s benefits is that it’s an opportunity to learn and grow. Take a look at your prior business plan and make essential notes of which parts went wrong that caused you to go into bankruptcy.

Build Your Credit Back Up

One of the hardest things about bankruptcy is that your credit score takes a significant hit. That number is essential if you need to file for a loan to start your business back up again.

Work towards building your credit back up. Start by paying all of your bills and credit cards on time. The more diligent you are about any remaining debt and paying it off, the more favorable outcome it will have on your credit score.

Find Another Source of Revenue

If your business can continue while you are going through bankruptcy, find additional ways to bring in more money. The reason you went into bankruptcy is that you lacked money. So, if you can find other ways to increase your monthly revenue, you’ll have more money to put towards your debt and to keep your business running.

Don’t look at bankruptcy as the end of an era. Instead, consider it as a second act— the new chance to get your company back up and running smoothly once more. It will take a lot of hard work and dedication, but a business can survive and thrive after filing for bankruptcy.

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Written by Canterbury Law Group

What Is a Priority Claim in Bankruptcy?

What Is a Priority Claim in Bankruptcy?

It’s a common misconception that when a debtor files for bankruptcy, all of their creditors are left in the dark, but this isn’t always the case. Money is readily available to pay creditors in almost all Chapter 13 cases and some Chapter 7 cases.

However, debtors are not automatically reimbursed. A creditor must use an official proof of claim form to submit a “proof of claim” to the court before they can get paid. Additionally, not all debts owed to creditors are handled equally.

Priority claims are obligations that are eligible for special consideration and will be paid before nonpriority claims. The creditor certifies whether a priority status exists by checking the box next to it in box 12 on the proof of claim form.

All claims submitted will be evaluated by the bankruptcy trustee, who has been appointed by the court to manage the case. The trustee will distribute money to priority creditors following the resolution of objections and confirmation of the plan in Chapter 13 bankruptcy. The trustee will pay claims without regard to priority if there is money left over.

Here are some typical priority claim examples:

  • administration fees for the bankruptcy (such as accounting or legal fees)
  • obligations for child and spousal support
  • 180 days prior to bankruptcy, compensation of up to $15,150 was earned (wages, commissions, and other compensation)
  • contributions to an employee benefit plan of up to $15,150
  • deposits made by the filer to secure future personal goods, services, or housing are allowed up to $3,350.
  • a fisherman may receive up to $7,475 for unpaid fish sold to a storage or processing facility.
  • the government’s unpaid taxes, and
  • Injury or fatality claims resulting from drunk driving-related car or boat accidents.

These numbers are valid as of April 1, 2022, and they continue to be so until March 31, 2025.

In a Chapter 13 case, each creditor requesting payment is required to submit a claim. If it appears that a Chapter 7 case is a “asset case,” meaning that funds will be available for distribution, the court will order creditors to submit claims. In contrast, in a “no-asset case,” creditors won’t submit claims.

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Written by Canterbury Law Group

Best Effort Requirement in Chapter 13 Bankruptcy

Best Effort Requirement in Chapter 13 Bankruptcy

What is the Best Effort Requirement of Chapter 13?

The bankruptcy trustee is appointed following the filing of the repayment plan. The trustee and your creditors will review your proposed repayment plan to ensure that it satisfies all bankruptcy requirements. Before being finalized, your repayment plan must also be approved (confirmed) by the court.

Paying your disposable income to nonpriority unsecured creditors (such as credit card companies) in your repayment plan will demonstrate that you are making every effort to repay your debts. After deducting allowed living expenses and mandatory payments, such as secured and priority debt payments, your disposable income is the amount remaining. (Secured debts are backed by collateral, such as a mortgage or an automobile loan. Priority debts are those that warrant advancement to the front of the payment queue. Examples include domestic support obligations and tax debt.)

You will apply your discretionary income to your remaining debt (nonpriority unsecured debt, like credit card balances and medical bills).

What Will I Pay Unsecured Nonpriority Creditors?

  • Using the Chapter 13 Calculation of Your Disposable Income form, you will subtract the following from your income to determine your disposable income:
  • Expenses for living based on national and regional norms, as well as some actual amounts
  • secured payments, such as mortgage or auto loan payments (and any delinquent payments), and
  • Priority debts include arrears on child support and certain tax debts.
  • Over the course of five years, you will be required to pay a minimum of your monthly disposable income to your non-priority unsecured creditors.

Why Will I Be Charged More If I Own a Large Property?

The analysis continues further. In determining whether to confirm your repayment plan, the judge will also consider whether your creditors will receive the same amount through your Chapter 13 plan as they would if you filed for Chapter 7 bankruptcy.

Here is why this is important:

In Chapter 7 bankruptcy, the trustee sells all nonexempt assets (those that are not protected by exemptions). The funds are allocated first to the priority creditors, and then, if anything remains, to the non-priority unsecured creditors.

  • Chapter 13 bankruptcy, on the other hand, allows you to keep non-exempt property. However, your creditors will not permit you to receive a windfall. To ensure that your creditors receive the same amount as they would under Chapter 7, you must pay the greater of:
  • the sum of your total priority debt and your disposable income, or
  • the market value of your taxable property.

Except: If You Were Eligible for Chapter 7

If you qualify for Chapter 7 but file for Chapter 13 for another reason, such as to save your home, you will not be required to calculate a monthly disposable income figure. Your plan payment will be based on your financial situation. The bankruptcy court will typically approve your Chapter 13 plan even if you’re paying non-priority unsecured creditors little or nothing. Additionally, the duration of your plan is reduced from five to three years.

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Written by Canterbury Law Group

Creditor Objection to Chapter 13 Plan

Creditor Objection to Chapter 13 Plan

Discover what it means if the bankruptcy trustee objects to your Chapter 13 plan’s confirmation and what you can do.

If you file for Chapter 13 bankruptcy and your proposed repayment plan violates all applicable bankruptcy laws, the bankruptcy trustee may object to your plan’s confirmation (approval). The following sections will discuss why the trustee may object to your Chapter 13 plan and your options if the trustee does object.

The Chapter 13 Plan and Confirmation by the Court

Chapter 13 bankruptcy is frequently referred to as a reorganization bankruptcy due to the fact that you repay some or all of your debts via a repayment plan. When you first file for Chapter 13, you present the trustee, your creditors, and the court with an initial repayment plan. After filing your case, you must immediately begin making plan payments to the trustee (your first payment is typically due within 30 days). However, your plan does not become permanent until it is confirmed by the court (which can take up to several months). (For more information on the Chapter 13 repayment plan, click here.)

Generally, unless the trustee or one of your creditors objects, the court will approve your plan. However, if you fail to submit a workable plan that complies with all applicable bankruptcy laws, the trustee may object to its confirmation.

When a Trustee May Disagree with Your Chapter 13 Plan

Numerous requirements must be met in order for the court to approve your proposed Chapter 13 plan. Generally, the trustee will oppose your plan if:

  • In your plan, you do not pay all of your disposable income to unsecured creditors (learn about how your disposable income affects your Chapter 13 plan)
  • You lack the financial means to make your plan payments.
  • Your plan does not pass the test of being in the best interests of creditors (which states that your plan must pay your unsecured creditors at least an amount equal to what they would have received in Chapter 7 bankruptcy)
  • Your plan excludes certain debts that you are required to repay (learn about debts you must pay back in your Chapter 13 plan)
  • Your plan is either too short or too long in duration (learn about how long your Chapter 13 plan must last)
  • You do not provide the trustee with all of the necessary supporting documents (such as tax returns or pay stubs).
  • you are in arrears with your plan payments, or
  • Otherwise, your proposal is not made in good faith. (Learn about the Chapter 13 good faith requirement.)

What Happens If Your Chapter 13 Plan Is Rejected by the Trustee?

One of the trustee’s primary responsibilities in Chapter 13 bankruptcy is to maximize payment to your unsecured creditors. This means that the trustee will almost always argue that you should be contributing more to your Chapter 13 plan. As a result, trustee objections are extremely prevalent in Chapter 13 bankruptcy. (Learn more about the Chapter 13 trustee’s role.)

If the trustee wishes to object to your plan, he or she will typically file a written objection to confirmation with the court, outlining the reasons why the court should reject your proposed plan. If you do not respond to the trustee’s objection, the plan will most likely be denied confirmation by the court. If you wish for the court to approve your plan following the trustee’s objection, you must file a written opposition explaining why you believe your plan is ready for confirmation.

Your Alternatives If the Trustee Disapproves of Your Plan

In the majority of cases, you can:

  • rectify your errors
  • submit a revised plan, or
  • To resolve the objections, negotiate with the trustee.

However, if you are unable to reach an agreement with the trustee, you must be prepared to argue your case before a judge during the Chapter 13 confirmation hearing (discussed below).

Confirmation Hearing under Chapter 13

Following your Chapter 13 bankruptcy filing, the court will schedule a confirmation hearing to determine whether or not to approve your plan. If no objections are raised by the trustee or your creditors to your proposed plan, the court will confirm it at the hearing. (Learn more about the confirmation hearing for Chapter 13 bankruptcy.)

However, if the trustee files an objection to your plan and you are unable to resolve it prior to the confirmation hearing, you must explain to the judge why you believe your plan should be confirmed. Following your presentation, the trustee will have an opportunity to make an argument.

The judge will decide whether or not to confirm your plan after hearing both sides. If the judge determines that additional evidence is required, he or she may also continue the hearing or remand the case for trial or evidentiary hearing.

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Written by Canterbury Law Group

What Happens If You Don’t Make Your Chapter 13 Plan Payments?

What Happens If You Don't Make Your Chapter 13 Plan Payments?

Defaulting on your Chapter 13 plan (failing to make payments) has a number of unfavorable consequences. This may result in your creditors obtaining court permission to foreclose on your home or repossess your car. Alternatively, the court may dismiss your case or never approve it at all. Discover some of the potential consequences of failing to make a Chapter 13 repayment plan payment, as well as options for resolving your bankruptcy.

After you file for bankruptcy, the bankruptcy court will determine whether your proposed repayment plan is feasible. Even though this “confirmation” (approval) process can take several months, you will begin making payments approximately one month after filing and will maintain current monthly plan payments until confirmation. If you do not keep up with your plan payments, your bankruptcy case will be dismissed.

Confirmations are frequently delayed when a trustee or creditor objects to the proposed Chapter 13 plan at the outset. If the confirmed amount is greater than the agreed-upon three- or five-year repayment period, the plan payment will be adjusted to ensure that you can complete the plan within the agreed-upon three- or five-year repayment period.

Creditors Could Be Exempt From the Automatic Stay

When you file for bankruptcy, an automatic stay is triggered. Except in limited circumstances, the automatic stay prohibits creditors from initiating or continuing collection activities (such as foreclosure or repossession) without first obtaining permission from the bankruptcy court. Due to the fact that the majority of your creditors will be paid through the Chapter 13 plan, they may seek relief from the automatic stay (permission to resume collection activities) if you fall behind on your plan payments. The request is made through the filing of a motion to lift the stay.

You Might Have Your Chapter 13 Bankruptcy Dismissed

Even if the court has already confirmed your case, you run the risk of having your case dismissed if you fall behind on your Chapter 13 payments. The bankruptcy trustee will petition the court to dismiss your case for failure to adhere to repayment plan requirements, and if granted, the court will dismiss your case without granting you a discharge of your debts (qualifying debts will remain unaffected).

What Are Your Chances of Avoiding Bankruptcy?

Financial difficulties during the Chapter 13 process are not uncommon. Even if you fall behind on your Chapter 13 payments, your case will not be automatically dismissed. You will still have options for resolving your bankruptcy and regaining possession of your property.

Eliminate Your Default

Even if the Chapter 13 trustee requests that your case be dismissed, you may still petition the court for additional time to cure (catch up on) your default. This is the simplest option if you missed a few payments due to an emergency but are now back on track and ready to begin repaying your debts. The majority of trustees and judges will grant you additional time if you demonstrate that you are capable of making up for missed payments.

Make Changes to Your Chapter 13 Plan

If your circumstances have changed since you filed bankruptcy (for example, if your income has decreased as a result of a layoff), you may petition the court to modify your plan and lower your monthly payments. This, however, may not be possible if the plan is solely used to pay priority debts and secured debts on property you do not wish to surrender. Due to the fact that these debts must be paid in full, the court will be unable to reduce your Chapter 13 plan payments.

Restore Your Bankruptcy Under Chapter 13

Even if the bankruptcy is dismissed by the court, you may be able to reinstate your case. However, you will typically be required to do so immediately following your dismissal, and you will be required to bring your plan payments current.

Convert to Chapter 7 or Obtain an Accelerated Discharge

Additionally, you may be able to convert your Chapter 13 bankruptcy to a Chapter 7 (in which case you will receive a discharge without making any plan payments). To do so, you must demonstrate that you qualify for a Chapter 7 bankruptcy because you are no longer able to afford a Chapter 13. However, keep in mind that Chapter 7 bankruptcy does not allow you to discharge priority debts or cure arrearages, so converting may not be in your best interest.

Similarly, you may file for a Chapter 13 hardship discharge early. You would, however, be subject to the same restrictions as Chapter 7.

Represent Yourself in a Chapter 13 Bankruptcy

In the majority of cases, you can immediately re-file a Chapter 13 bankruptcy following dismissal. However, you may be prohibited from refiling for six months if you violated court orders or voluntarily dismissed your prior case, particularly if a creditor obtains relief from the stay. These types of filing prohibitions occur when the court “with prejudice” dismisses your case. Additionally, if you file a subsequent bankruptcy within a year of your previous one, the automatic stay will be limited to 30 days, and you will need to petition the court to extend it.

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Written by Canterbury Law Group

The Chapter 13 Confirmation Hearing

Chapter 13 Bankruptcy Confirmation Hearing

You must propose a plan to repay part or all of your debts when filing Chapter 13 bankruptcy. The bankruptcy judge decides whether your plan can be approved at the confirmation hearing. Continue reading to learn more about the confirmation hearing, including when it takes place, who is invited, and what happens if your Chapter 13 plan is not approved.

The Repayment Plan for Chapter 13

In Chapter 13, you propose a three- to five-year payment plan. The month after you file your case, you’ll make your first payment. The funds are held by the Chapter 13 bankruptcy trustee until the judge approves your Chapter 13 plan, after which they are distributed to creditors.

Hearing on Confirmation

The bankruptcy judge must approve (confirm) your Chapter 13 plan. The bankruptcy court judge will use the confirmation hearing to determine the following:

  • whether your plan is feasible and you’ll be able to make the payments on time, and
  • whether you filed your plan in good faith or not, your unsecured creditors will receive the same amount of money or more than they would have received if you had filed for Chapter 7 bankruptcy.

Timing of Confirmation

Within 45 days of the 341 meeting of creditors, the court will schedule the confirmation hearing. The hearing will be announced to your creditors at least 28 days in advance.

Attendance

You are not required to attend the confirmation hearing if you are represented by an attorney, but you may do so if you wish. You must appear if you are not represented by counsel, or your Chapter 13 case will be dismissed.

What Takes Place During the Hearing?

You will report to the assigned judge’s courtroom when you appear for the confirmation hearing. Any plan objections that were not resolved before the hearing will be argued by the trustee or creditor when they are called. The judge will consider the arguments and determine whether your plan meets the requirements for confirmation. Both you and your creditors are bound by the plan once it is confirmed.

Objections at the Confirmation Hearing should be planned ahead of time.

The confirmation of your plan may be challenged by your creditors or the Chapter 13 bankruptcy trustee. Among the most common objections are:

  • The plan does not commit all available funds for the three or five-year plan period, or it does not commit all available funds for the three or five-year plan period.
  • Under the plan, you haven’t adequately provided for creditors.

For example, if you want to keep the property that serves as collateral in Chapter 13, you must pay all past due amounts owed to secured creditors, which are usually the holders of a mortgage or car loan. In addition, you must pay off all of your unsecured debts, such as credit card balances, medical bills, and personal loans, with your disposable income. Furthermore, these creditors cannot receive less than they would have received if you had filed for Chapter 7. The “best interests of creditors” test is what it’s called.

In many cases, an objection can be resolved prior to the hearing. If the trustee or a creditor claims that the expenses listed in Schedule J are excessive, you can resolve the issue by providing proof of your expenses. Similarly, if a creditor claims you aren’t paying enough, you can settle the dispute by changing your payment schedule to increase the amount you pay.

If the Court Approves Your Plan During Your Hearing

Following confirmation, the trustee will use the monthly payments you send in to pay the creditors listed in your Chapter 13 plan. Making timely and regular payments to the trustee is critical to the success of your case. If you are unable to make your Chapter 13 plan payments, contact the trustee’s office right away. They can assist you in modifying your plan payments.

If Your Plan Isn’t Confirmed by the Court

If the court rejects your proposed plan, the trustee will refund your money, minus any adequate protection payments made to ensure that a secured creditor—usually the holder of your car payment—is not financially harmed during the confirmation process (a bankruptcy requirement).

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Written by Canterbury Law Group

What Does The Chapter 7 And 13 Bankruptcy Trustee Do?

What Does The Chapter 13 Bankruptcy Trustee Do?

Learn more about Chapter 13 bankruptcy trustees, including what they do, how they are compensated, and how they manage your repayment plan.

When you file for Chapter 13 bankruptcy, the court will appoint a trustee to manage your case. You’ll learn about the Chapter 13 trustee’s responsibilities, how the trustee is compensated, and the role the trustee will play in your case in this article.

The Chapter 13 Bankruptcy Trustee’s Responsibilities

The trustee’s job in a Chapter 13 bankruptcy is to:

  • Make sure your proposed Chapter 13 repayment plan complies with all legal requirements.
  • Before you file, make sure you’ve filed your tax returns for the previous four years.
  • take advantage of the plan’s payments
  • Distribute plan payments to your creditors according to the law.
  • keep track of the required monthly income and expense reports in a Chapter 13 case, and
  • If you owe back child support, you must provide certain information to the payee and your state’s child support enforcement agency.

How are Chapter 13 Trustees compensated?

Trustees in Chapter 13 keep about 7%–10% of the payments they make to creditors. When deciding whether Chapter 13 is right for you, keep this fee in mind.

The Function of the Chapter 13 Trustee in Your Case

Many Chapter 13 trustees are involved in the cases they oversee. This is particularly true in small suburban or rural judicial districts, as well as in districts with a high number of Chapter 13 bankruptcy cases. A trustee might, for example:

  • provide you with financial advice, such as assisting you in the creation of a realistic budget (the trustee cannot, however, give you legal advice)
  • assist you in making any necessary changes to your plan
  • if you miss a payment or two, give you a temporary reprieve or take other steps to help you get back on track, or
  • Participate in any hearing about the value of a piece of property, and consider hiring an appraiser if necessary.
  • Your financial relationship with the trustee has its limits, despite the trustee’s interest in your finances.
  • You will have control over any money or property you obtain after filing, as long as you follow your repayment plan’s instructions and make all regular payments on your secured debts.

However, if your income or property rises during the course of your plan (for example, if you get a big promotion or win the lottery), the trustee can seek to amend your plan to pay your creditors a higher percentage of what you owe them rather than the lower percentage originally specified. If your income drops and you have to convert from Chapter 13 to Chapter 7, the trustee may become involved.

When you file for Chapter 7 bankruptcy, the court appoints a bankruptcy trustee to oversee the administration of your case. You’ll learn about the specific responsibilities of the Chapter 7 bankruptcy trustee in this article, so you’ll know what to expect before, during, and after the 341 meeting of creditors—the mandatory hearing for almost all filers.

What Does a Chapter 7 Trustee Do?

The Chapter 7 trustee examines the debtor’s bankruptcy paperwork and verifies his or her identification. However, these are minor responsibilities. The Chapter 7 trustee’s primary responsibility is to sell any property that the debtor is not entitled to keep and to distribute the proceeds to the debtor’s creditors. Thus, in any Chapter 7 bankruptcy case, the trustee’s primary interest will be in your personal property and any property you claim as exempt (that you have the right to keep).

Certain individuals believe that the trustee’s role is to assist the debtor throughout the process. The trustee’s role is to protect creditors, not debtors—although the trustee will be courteous and assist the case in moving forward. The best way to grasp this dynamic is to understand how the trustee is compensated. Continue reading.

Payment to the Chapter 7 Trustee

A Chapter 7 trustee is compensated a pittance of $65 per case for performing a cursory review of a debtor’s bankruptcy petition (as of August 2020). A Chapter 7 trustee, on the other hand, stands to earn significantly more. The trustee is compensated by the court a percentage of the funds distributed to the debtor’s creditors.

The funds could come from a variety of nonexempt sources (property that the filer cannot protect with a bankruptcy exemption), including money in the debtor’s bank account, nonexempt property that the trustee liquidates (sells), or funds that the debtor agrees to pay in exchange for the right to keep nonexempt property (more below). The trustee receives 25% of the first $5,000, 10% of the next $50,000, and 5% of any additional funds up to $1,000,000.

The Chapter 7 Trustee conducts an examination of the Bankruptcy Petition.

If all of your property is exempt (you get to keep exempt property), your case is considered a “no-asset” case—creditors will receive nothing. The bankruptcy notice sent to creditors will inform them that they are not required to file proof of claim forms because there will be no money available to pay them. However, they will be informed that this may change.

Under the supervision of the United States Trustee, the trustee is required to review your bankruptcy papers for accuracy and indications of possible fraud or abuse of the bankruptcy system. The trustee will review the documentation and look for indications that you are concealing or mischaracterizing assets. The petition and schedules, as well as the 521 documents you submitted prior to the hearing, will be reviewed (bank statements, paycheck stubs, profit and loss statements, tax returns, and the like).

After discovering nothing, the trustee will lose interest in the case. When the trustee has no property to seize and sell in order to pay your unsecured creditors, there is no commission to motivate the trustee.

The 341 Creditors Meeting Is Conducted by the Chapter 7 Trustee

You’ll meet the Chapter 7 bankruptcy trustee at your creditors’ meeting, which you must attend in order to avoid having your bankruptcy dismissed. The trustee will verify your identification, ask the mandatory 341 questions (along with any other issues raised by your paperwork), and allow any creditors who appear to ask questions (they rarely show up).

Generally, if all of your assets are exempt, the trustee will call the meeting to a close and you will not hear from the trustee again. You’ll complete your debtor education course and await the discharge of your debt.

If, however, you are unable to fully respond to the trustee’s questions, the trustee will postpone the creditors’ meeting and request that you submit appropriate documentation in the interim. Occasionally, the trustee may retain an attorney to pursue nonexempt assets you appear to own, or may refer your case to the United States Trustee’s office for further action if it appears as though you engaged in fraudulent activity.

Nonexempt Assets Are Seized by the Chapter 7 Trustee

If the trustee needs to seize and sell nonexempt assets, you must cooperate in delivering them to the trustee for disposition. Additionally, you can “repurchase” nonexempt assets from the trustee at a negotiated price or substitute exempt assets for nonexempt assets. Numerous trustees discount the property’s value by 20% and occasionally grant the debtor a few months to pay.

Search by the Trustee for Non-Exempt Assets

Many people are unsure whether a trustee has the authority to search their homes to ascertain whether they are concealing property. While such searches are unusual, as part of your obligation to cooperate with the trustee, you may be required to give the trustee a guided tour of your home or storage space. And if you refuse to cooperate, the trustee can obtain a court order compelling you to comply.

Abandonment of Non-Exempt Assets by the Trustee

If you own nonexempt property that is not worth much or would be difficult for the trustee to sell, the trustee can — and frequently will — abandon it, allowing you to keep it. For instance, regardless of how much your used furniture is theoretically worth, many trustees will avoid selling it. Arranging for the sale of used furniture is time consuming and rarely results in a significant profit for the creditors.

The Chapter 7 Trustee Issues Notices of Support Arrears

If you owe back child support, the trustee must notify the support claimant and the state child support agency in order to assist them in locating you following your bankruptcy discharge. Specifically, the trustee will inform the payee of his or her bankruptcy-related rights. The trustee will notify the state child support enforcement agency of the back support, the discharge, the debtor’s address and employer information, and the identity of any creditor holding a nondischargeable, reaffirmed, or a claim.

Both the payee and the child support enforcement agency have the right to request your last known address from these creditors. These creditors are permitted by law to release such information without incurring any penalties.

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