Although Chapter 13 bankruptcy procedures might seem somewhat simple, it's essential to understand what you are getting into before filing. In a Chapter 13 case, you make creditor payments to the bankruptcy trustee for three or five years. You must file a lengthy set of official bankruptcy forms and attend at least two meetings. When the case is over, you'll receive a discharge of qualifying debts. Most filers emerge from Chapter 13 owing only a mortgage payment and student loans, assuming they owed these debts before starting Chapter 13.
Most Chapter 13 filers hire an attorney to help navigate the Chapter 13 process, something most bankruptcy courts strongly advise. Even if counsel represents you, it's a good idea to understand what a Chapter 13 case will involve before beginning the process.
You can learn more about how Chapter 13 works, including details about the repayment plan and what happens to your debts and property, in Chapter 13 Bankruptcy.
Here's what you can expect in a typical Chapter 13 from start to finish.
- You take and complete a credit counseling course. Sometime during the six months before filing for Chapter 13 bankruptcy, you must take a credit counseling course from an agency approved by the U.S. Trustee's office. The list of approved agencies is on the U.S. Trustee's website; click "Credit Counseling & Debtor Education" to see the list. You can learn about exceptions to this rule in The Credit Counseling Requirement in Bankruptcy.
- You'll prepare the bankruptcy petition and the proposed Chapter 13 plan. You must complete a large packet of forms, including the bankruptcy petition, schedules, and other required forms. You'll disclose all your property, debts, income, property transfers, and more in these forms. You must also draft and submit a proposed Chapter 13 repayment plan. The repayment plan is the crux of your Chapter 13 case. It isn't easy to develop a plan that meets all legal requirements. This is one reason why many Chapter 13 filers hire an attorney. To learn more, see The Chapter 13 Repayment Plan.
- You file your bankruptcy petition, proposed plan, and other required documents. You or your attorney will file the bankruptcy papers along with your most recent tax return and proof that you've filed tax returns in the last four years.
- The court appoints a bankruptcy trustee to administer your case. The trustee is charged with reviewing your plan and ensuring it complies with the law, collecting payments under your plan and distributing them to creditors, and monitoring your monthly income and expense reports, among other things. Learn more in The Role of the Chapter 13 Bankruptcy Trustee.
- The automatic stay takes effect. Once you file your papers, bankruptcy's automatic stay goes into effect. The trustee will notify your creditors of your filing and the stay. The automatic stay prohibits most creditors from continuing with collection actions. A few exceptions to the automatic stay exist, and some creditors might ask the court to remove it so they can continue collection actions. Learn more in Bankruptcy's Automatic Stay.
- You make your first plan payment. Even though your plan will not yet be confirmed, you must begin making payments about one month after you file your papers.
- Attend the meeting of creditors. Also called the "341 hearing," the bankruptcy trustee conducts the meeting of creditors in a conference room, not a courtroom. The trustee will ask questions about your papers and finances. Creditors can also ask questions to help them determine whether they should object to your proposed plan (objections don't occur at the meeting itself). Find out more in What to Expect at the Meeting of Creditors.
- Attend the confirmation hearing. You or your attorney must attend an additional appearance called the confirmation hearing. The judge will address any plan objections filed by a creditor or the trustee. If you've proposed a plan that pays creditors what they're entitled to receive, the court will confirm your plan.
- File or object to proofs of claim. Creditors file proof of claim forms requesting payment from the funds paid to the trustee. You can object to inaccurate proofs of claims and file them for creditors who don't file by the deadline. Ensuring creditors are paid within the plan will allow you to discharge the remaining balances after completing monthly payments.
- Comply with plan requirements and payments. During the repayment period, you must make your plan payments. You'll also submit yearly tax returns as they come due.
- Complete a personal financial management class. You must complete a debtor education class before the end of the case. This is separate from the credit counseling required before bankruptcy and discussed in Step 1.
- The court grants a discharge and closes your case. When the repayment period ends, the court will grant a discharge. The discharge wipes out any remaining balance of qualifying debt. The court might hold a discharge hearing or mail you the notice without a hearing.