What Happens After Filing For Chapter 13 Bankruptcy?

After filing for Chapter 13 bankruptcy, a series of legal and procedural steps unfold, aimed at reorganizing the debtor’s finances under a court-approved repayment plan. This process provides a pathway for debtors to repay their debts over a period of three to five years while retaining their assets. Here’s what happens after filing for Chapter 13 bankruptcy:

1. Automatic Stay Goes into Effect

Immediately upon filing the Chapter 13 petition, an automatic stay is activated. This legal injunction stops most creditors from pursuing collection actions against the debtor, including lawsuits, wage garnishments, and attempts to repossess or foreclose on the debtor’s property. The automatic stay provides immediate relief from creditor harassment and collection efforts.

2. Appointment of a Bankruptcy Trustee

The court appoints a bankruptcy trustee to oversee the case. The trustee’s role is to evaluate the debtor’s financial situation, collect payments from the debtor, and distribute those payments to creditors according to the terms of the Chapter 13 repayment plan.

3. 341 Meeting of Creditors

Within a few weeks after filing, the trustee schedules a meeting of creditors (also known as the 341 meeting). Despite its name, creditors rarely attend this meeting. The debtor must attend and answer questions under oath from the trustee (and any creditors who do attend) about their finances and the proposed repayment plan.

4. Filing of the Repayment Plan

The debtor must file a proposed repayment plan with the bankruptcy petition or within 14 days after the petition is filed. This plan details how the debtor intends to pay off current and past due debts over the next three to five years. The plan must prioritize certain debts, such as back taxes and child support, and provide for payments on secured debts, like a mortgage or car loan.

5. Confirmation Hearing

A confirmation hearing is held within 45 days after the meeting of creditors. During this hearing, the bankruptcy judge decides whether to approve the debtor’s repayment plan. Creditors can object to the plan if they believe it doesn’t comply with legal requirements or if they’re being treated unfairly. If the plan is feasible, proposed in good faith, and meets the Bankruptcy Code’s requirements, the court will typically confirm it.

6. Making Plan Payments

After the plan is confirmed, the debtor must start making regular payments to the trustee, who then distributes the funds to creditors as specified in the plan. Payments must begin within 30 days of filing the bankruptcy petition, even if the plan hasn’t yet been confirmed by the court.

7. Maintaining Payments and Direct Payments

The debtor must make all payments under the plan to the trustee and also keep up with any ongoing payments for debts not included in the plan (e.g., a mortgage or auto loan).

8. Debtor Education Course

Before completing the Chapter 13 process, the debtor must take a debtor education course from an approved agency. This course focuses on personal financial management to help the debtor avoid future financial difficulties.

9. Completion of Plan Payments

If the debtor successfully makes all payments under the plan, they will reach the end of the Chapter 13 process. This typically takes three to five years, depending on the length of the repayment plan.

10. Discharge of Remaining Debts

After completing the repayment plan, the debtor is eligible for a discharge of most remaining debts. This discharge releases the debtor from personal liability for these debts. Certain debts, such as student loans, certain taxes, and child support, are not dischargeable in Chapter 13.

11. Case Closure

Once the discharge is granted, and all administrative tasks are completed, the court will close the bankruptcy case.

Filing for Chapter 13 bankruptcy initiates a structured process that allows debtors to reorganize their debts and work towards financial stability while protecting their assets from liquidation. It’s a complex process that often benefits from the guidance of a bankruptcy attorney to navigate successfully.