This page is intended neither as legal advice, nor does it create nor attempt to create an attorney-client relationship. The person viewing this page is admonished that an attorney-client relationship may only be created with the express consent to the parties to it. Bankruptcy law is complicated and these "FAQ's" should only be used to give the reader a preliminary introduction to Chapter 13 law. As always, the reader should consult with bankruptcy counsel before taking any action in this regard. Mr. Rubin is licensed to practice law in PA, NJ & NY (inactive in NY). Referrals can often be made to attorneys in other states. Call Mr. Rubin at (610) 565-6660.
Chapter 13 is a chapter of the Bankruptcy Code that is structured for wages earners or small businesses. When a person files an initial case, where one has not been filed before, all debt collection activities (wage attachments, mortgage foreclosures, lawsuits, telephone calls, letters, bank setoffs or any kind of collections activity at all are stayed (halted) by the filing of the case. When the case is filed, or very shortly thereafter, the attorney proposes a "plan" of repayment. You as the "debtor" must commence payments to the Chapter 13 Trustee within 30 days of your filing date (failure to commence payments may lead to the dismissal of your case). The plan may, in most circumstances, propose payments in an amount less than 100% of your debts. Many, who earn less than the median income for their states, pay much less than 100% of their unsecured debts, and some pay none of those debts. The actual amount paid is determined by a complicated formula calculated by your attorney called the "means test" more formerly called the Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income. The purpose of the means test is twofold: to determine the commitment period, i.e. the length of time the debtor must be pay into a chapter 13 plan and the minimum amount the debtor must repay unsecured creditors. Secured and priority creditors payments are determined by other factors. After a "confirmation hearing," the court approves your plan, and it becomes binding upon you and the creditors. After you complete payments under the plan, the court cancels the balance of your unsecured debt (not discharged in chapter 13 are mortgage obligations, certain long term debts, debts for alimony or child support, certain taxes, debts for most government funded or guaranteed educational loans or benefit overpayments, 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 included in a sentence on the debtor's conviction of a crime). Chapter 13 is used frequently to stop mortgage foreclosures and can save your home; even at the last moment.
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What is electronic filing and how can that help me?
Electronic filing is the best thing that has happened to the court system in years. Electronic filing allows the filing and processing of bankruptcy petitions, as well as subsequent filings of court documents almost instantaneously through the internet. This office went online with the court several years ago, but now we are certified by the court to file electronically. The electronic filing system, known as ECF/ECM became operational in early 2003. We were one of the first to take advantage of this system. What does this mean to you?
Electronic filing could make all the difference in the world for you and your family. All cases are filed electronically now by all attorneys.
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What is the "automatic stay" and why should I be concerned about it? Can I recover money for its violation?
You should be concerned about it for two main reasons:
First, it protects you from the barbaric hordes (a/k/a your creditors) that are looking to dismember your financial existence. The automatic stay applies to almost all creditors (see exceptions below) and stays all activities that are intended enforce the repayment of a debt, or to make it uncomfortable or embarrassing for someone in order to enforce the repayment of an obligation. The automatic stay prevents anyone, or any entity, from pursuing legal recourse against a debtor, except for criminal fines or restitution (pay that bad check!). It does not get you out of child support (shame on you for even thinking that)! It does not get you out of spousal support (even if he/she does not deserve it!). It does not stop you for being arrested for not paying a criminal fine. It does not give you criminal immunity (wouldn't that be nice?). It does not get you out of traffic tickets. It may in certain instances apply to parking fines (check with your local attorney first). The automatic stay is "automatic" (and does not need batteries). The court issues it by virtue of the mere filing of the bankruptcy case. You do not have to move for it or apply to the court to get one.
Secondly, violators of the automatic stay can become liable to you for monetary damages, as long as damages accrue to you.. This office has brought many stay violation actions. These actions, depending on the severity, can award a debtor damages for their losses, pain and suffering (if it can be related to a medical condition) actual specific economic losses as well as attorney's fees and costs of the lawsuit (if any; in most such actions there are no additional court fees). Many people are surprised that they can recover money from their bankruptcy case, but the courts have upheld the principal that the debtor will be protected from financial loss where it is found. Some cases have held that where a debtor incurs a financial loss, that loss can be enhanced by intentional infliction of emotional distress where it enhances an actual pecuniary loss. Emotional distress alone does not warrant a recovery where only emotional distress exists e.g. the debtor receives calls only but loses no money.
Read all about what is stayed and what is not stayed here, in 11 U.S.C. §362. This is the application section of the Bankruptcy Code relating to the stay powers of the court. Note that the Bankruptcy Court sits also as a court of equity. Courts of equity can order people to do things, beside just ordering people to pay money. An example of a court that is not a court of equity is your local magistrate.
Furthermore, the protection continues when the debtor receives a discharge in bankruptcy, as to the debts that were part of the case (not debts incurred after filing). This office once brought a motion against a creditor that later paid a debtor $7,500 for a violation of the discharge injunction. Lately, we settled against a bank that thought the debtors' case was dismissed and called every day, causing and infirm individual to be admitted to the hospital. Some actual cases brought against creditors include the following amounts:
These were actual cases brought with no money advanced by the client and no court costs requested. The above cases were all settled and the client, with one exception, never went to court. Most of these cases were brought against large corporations. Some have required clients to not reveal the settlement, so names of participants have not been listed.
Most of the above cases represented abuses by creditors who then sought to blame "their systems" for an "unintentional error." Needless to say, our office did not buy this excuse and our client's rights were vindicated.
Any attorney can file a bankruptcy case. It requires a vigilant attorney to recover money for the client in a bankruptcy case. We don't just file and forget cases. We watch for stay violations and prosecute vigorously.
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The Bankruptcy Code says that any individual with a regular income, i.e. a person with a stable income regular enough to allow him or her to make payments under a chapter 13 plan, can file a chapter 13 case. You do not need to have a job to file. You need only to have some source of regular income. You may not file a chapter 13 if a creditor has requested relief from the automatic stay in a prior bankruptcy that you filed, and you voluntarily dismissed the case. This bar continues for 180 days from the date you dismissed your case. You may also be barred from filing for the 180 day period if your case was dismissed for willful failure to abide by orders of the court, or to appear before the court in proper prosecution of his case. See this section of the Bankruptcy Code for further explanation: 11.U.S.C. §109(e) and (g). Please note that the law as quoted on this link may not be updated. The limits are currently even higher (see below).
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My father/mother's home is in foreclosure and he/she has recently died. I was supposed to inherit the home. Can I save it?
That depends upon whether title has passed to you. Estates cannot file chapter 13s. Deceased persons cannot file chapter 13s. Persons who have inherited real estate can. The phrase "have inherited" is important. If you received title through an estate, there is no problem; you can file. If the estate is open and the home is in the name of the decedent., have the executor transfer the home to you and then file.
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Is there a limit on how much I can owe?
Yes, but you probably don't meet it. Beginning April 1, 2019, the eligibility debt limits for Chapter 13 pursuant to 11 USC 109(e) were:
Unsecured debt limit: $419,275
You do not qualify for a chapter 13 if you owe more than $419,275 in unsecured debts (e.g. credit cards, signature loans, other non-collateralized liability) and $1,257,850 in secured (mortgages, new car loans, etc.) debt. These Chapter 13 debt limits adjust every 3 years under Section 104(a). The next Chapter 13 debt limit adjustment will occur on April 1, 2022.
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Who notifies the creditors that I have filed?
The court notifies the creditors. It usually takes about two to three weeks. Some creditors may not "notice" that you have filed due to their size. They may continue to call you and send bills after you have filed. This may be because the address you give to your attorney may be just a billing service. Many creditors use these billing services instead of doing it themselves. There may be incompetent people working for the services. It is therefore important that you list the address given for reporting billing errors and not the payment address. The "errors" address usually goes to more competent people, since they need to know how to comply with federal law on billing errors.
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Can a Chapter 13 save my home from foreclosure?
In most cases, yes! One of the main purposes of a Chapter 13 is to enable a homeowner to cure the default owed to a mortgage company. In other words, to reinstate a mortgage to its pre-default status. This is done through payment of a Chapter 13 "plan." Under this plan, the debtor makes payments to a trustee usually over a 36 - 60 month period, which sum includes sufficient funds to reinstate the loan to current status. The actual time depends very much on what is called the "means test." Simply stated, if you earn more than the median income for your state, your plan will usually, buy not always be 60 months. During this time period, the mortgage company cannot sell your home, or in any way continue with the foreclosure action if one is pending. If a foreclosure action is not commenced when you file, the mortgage company cannot begin one after you file (while the case is pending). The exception is where the mortgage company obtains Bankruptcy Court permission to proceed with a foreclosure, which usually comes about if you fail to make mortgage payments after you file your case.
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...But I can't afford my mortgage payments. Can Chapter 13 eliminate, extend or reduce them?
One of the primary requirements of the Bankruptcy Code relating to Chapter 13 plans is the so-called "antimodification clause."
There is presently legislation that proposes to modify this requirement, but
it has not passed as of this writing. This states that a chapter 13 debtor must provide for full payment to a mortgage company which maintains a lien on the residence of the debtor where that lien is the only security held by the mortgagee (e.g. the mortgagee's lien is not on the house and personal - not real estate - property). Therefore, your mortgage payment cannot be changed, stayed or eliminated, except that mortgage arrears only may be paid over the life of the plan. This is a maximum of 60 months. There is one exception:
In the Third Circuit (PA, DE, NJ) the Court of Appeals decided a case called In re: MacDonald. Although the court preserved the antimodification clause of the Bankruptcy Code, it did decide that where a second mortgage is wholly unsecured, it may be treated as unsecured. This example will clarify the point. Mr. and Mrs. Homeowner purchase their first home for $100,000. They borrow $90,000 from Greedee Savings Bank. They hold the house for 10 years and decide it needs windows. Over the years, the market and the neighborhood go to pot and their home is now worth $85,000. The balance on the mortgage is still about $89,000 because Greedee Savings Banks mortgage rate was $12%.
They are approached by Window Wiz Window Co. The salesman says, "I can give you new windows for only $300 a month; surely you can afford that! These windows will increase the value of your home by $20,000!" The homeowner says, "Yes indeed we can. Why, we would be fools not to take this deal! And don't call me Shirley (sorry about that joke-I can't resist). The Window Wiz guy does not tell them that the $300 a month creates a mortgage and the payments go on for 30 years, making the price of the windows $90,000, which is more than the value of the house. Homeowner then decides that Window Wiz gave them a bad deal and decides to sell the house. They are rudely awoken by the huge second mortgage on the place. The only solution seems to be arson. Do Homeowners risk prison?
The above case says that Homeowners can legally cancel the lien of the second mortgage if they complete their Chapter 13 Plan. This is because Window Wiz Co. has no real equity in the place anyway. That is, the first mortgage eats up all the equity in the home, and then some. The court felt that the second mortgagee only had an unsecured loan in fact, anyway.
This office has to date eliminated mortgages in four cases. The home owners have saved hundreds of dollars in wasted second mortgage payments which would never increase the equity in their real estate. If you are in this position, be sure to mention it to us if you visit our office.
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Can a Chapter 13 get my repossessed car back?
In many cases, the answer is also yes. However, if the car has been sold, or if you simply wait too long after repossession, it may be difficult or impossible to recover the vehicle. You must check with your attorney at the time you file for a more definitive answer. Most vehicle loan companies will return a car voluntarily after you file a chapter 13 (provided the car is not sold) if you show adequate insurance. This insurance usually must include collision and name the finance company as a loss payee, meaning the policy must specifically mention the loan company as the person/company which gets paid first in the event of a loss.
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Can a Chapter 13 get my house back after a sheriff sale?
This is a good reason why one should not to wait until the last minute to file. The short answers is "almost never." The long answer is "sometimes." Generally once your house is sold at a sheriff sale, there is no sense filing a chapter 13 to try to save it. The filing of a case will not, in and of itself, set aside or vacate a sheriff's sale held in a regular manner in accordance with the law. Sometimes, and this is rare, the state court may set aside the sheriff's sale if the sale was conducted in an illegal manner, or without proper notice. It is usually very difficult to get a court to set aside the sale. Therefore, once the "hammer falls," you had better start looking for another place to live.
Actual case in point (last minute filings): This office handled clients who already had filed "pro-se" on July 20, 2001 (before this office got their case). "Pro-se" generally means that the client filed without legal counsel. The clients decided to file on July 20, 2001 because their sheriff's sale was ... you guessed it, on July 20, 2001 at 11:00 a.m. At that time, they sought to save attorney's fees and do the filing themselves. They arrived at the Bankruptcy Court at 9:30 a.m. By the time they got finished with their paperwork, they claimed it was 10:45 a.m. According to wife's testimony before the Bankruptcy Court in a motion filed by the mortgage company against the debtors, she handed the paperwork to the clerk, who did not get to her case until 1:15 p.m. to stamp it in. The debtors' home was sold between 11:00 a.m. and 1:00 p.m. that day. At trial this office argued that it was the time of handing the papers to the clerk that counted. The mortgage company argued that the debtors were not to be believed, and the time of "stamping" that was determinative. The clerk testified that 27 people filed cases before the debtors that day; that papers are never held more than an hour and a half before stamping; and this is on the busiest days. The clerk said there were 81 people filing that day and the busiest day that month had 175 people filing. This was not the first bankruptcy that the debtors had filed. In fact, they had filed chapter 13's twice before and had not completed payments under their plans. The Bankruptcy judge found that the debtors were not unsophisticated in filing cases, that they should have known this was the probable outcome and were, in short, not to be believed. The debtors unfortunately were not able to save their home. The moral? 1. Bankruptcy Court is not a place for procrastination. 2. Attorney's fees are a lot cheaper than a new home.
Those insurance companies are crooks. I let my fire insurance lapse. That's my business, right?
Right, however... It is also the business of the chapter 13 trustee who will move to dismiss your case (throw it out of court) for refusing to protect the rights of your mortgage company and your other creditors. A destroyed home makes lousy collateral for a mortgage, puts the debtor out on the street and generally has a negative impact on future chapter 13 plan payments. You must have and maintain a current and valid fire insurance policy on all real estate to stay in bankruptcy.
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How much will I have to pay in a Chapter 13 plan?
That depends upon several factors. First consider the commitment period and minimum amount you must pay under the means test (see above). Once at least the minimum amount under the means test is paid, then you can proceed as stated herein.
When your mortgage is in default (applicable also to defaulted vehicle payment which is figured in a similar manner, except there is no sheriff's sale), your payment will depend upon the amount you have to cure (bring your mortgage current). This will not be the number of payments missed times the payment amount due divided by the length of the plan (e.g. The plan is NOT calculated like this: arrears = $6000, plan is 60 months, therefore plan is $100 a month). The amount to cure the default may be calculated as follows (these figures do not represent your personal figures-they are hypothetical and by way of example only):