Tips for Surviving Chapter 13 Bankruptcy

Living on a strict budget and financial plan for three to five years isn't always easy. But that's what it will take if you file for Chapter 13 bankruptcy. In this chapter, you'll pay back debts in full or in part (depending on the type of debt and some other factors) under a Chapter 13 repayment plan. The key to surviving in a Chapter 13 bankruptcy is understanding the process and developing habits that help you stay within your Chapter 13 budget.

Preparing the Chapter 13 Paperwork

The average bankruptcy petition, schedules, and Chapter 13 repayment plan can run up to 50 pages or more. On it, you'll provide information about your debts, assets, income, expenses, and financial history. If you leave anything out, it could come back to haunt you later on.

The first step is gathering financial records, including bank statements, tax returns, and paystubs. If you don't have them, you'll want to make arrangements to get them. If you haven't prepared or filed income tax returns, you'll need to do so before filing bankruptcy.

Once your financial documents are in order, try to keep them somewhere handy so that you can give them to your attorney when needed—and stay in the habit of keeping good financial records throughout the life of your Chapter 13 plan. Such documents are often needed when making changes to your plan or when dealing with other issues.

The next step is completing the paperwork. And there's no sugarcoating it—filling out all of the bankruptcy papers can be time-consuming, frustrating, and confusing. In fact, most people need the help of a bankruptcy attorney in Chapter 13. Either way, you'll want to be sure to be:

• honest
• accurate, and
• thorough.

(Learn more in How to Fill Out Bankruptcy Forms.)

Creating and Living Within Your Budget

Your Chapter 13 bankruptcy won't work if you can't make your plan payments. It's based on a two-part calculation:

• the amount of debt you must repay in the plan, and
• your income, or, ability to pay your debt.

In Chapter 13, how much you'll pay will depend on your disposable income. It's calculated by deducting allowed monthly personal and household expenses from your monthly take-home income.

Creating a budget and analyzing your plan payments also serve as an important reality check. If your budget cannot realistically support the debts that you must repay in a Chapter 13 plan, then it's time to consider other non-bankruptcy options. If your budget can support the plan payments, then you'll know what to expect and can plan accordingly. Stay committed to that budget for the next three to five years, and you should succeed in Chapter 13.

(To learn more, see Chapter 13 Repayment Plan.)

The Meeting of Creditors and Confirmation Hearing

You'll have a minimum of two court appearances before your Chapter 13 plan is approved. The first is the 341 meeting of creditors that all filers must attend. The trustee appointed to your case will verify your identity, ask you questions about your paperwork, and allow any creditors in attendance to ask financial questions.

At the confirmation hearing, the judge will decide whether your plan is feasible. Your creditors will have an opportunity to object to the plan beforehand. Such objections are often resolved before the confirmation hearing. If the judge finds that there's a planning problem, you'll likely be given time to make the necessary corrections.

After the Confirmation

Your bankruptcy case isn't over after your Chapter 13 plan is confirmed—and it might or might not be on autopilot while you make your monthly payment. A variety of things do and can happen during the three to five years that your Chapter 13 is pending.

Because of this, you'll want to pay attention to any communications you receive. Here are a few important examples.

• Trustee reports. You'll want to review the periodic ledgers that the trustee's office sends you. These statements detail your plan payment history and how and when the trustee applied your payments to each creditor claim. Watch for any creditor claims that don't seem to match what you disclosed in your original bankruptcy schedules. You should also watch the numbers. If the creditor claims, as filed, are higher than what you estimated, you might have to increase your plan payments and amend other bankruptcy documents, to ensure that you complete your Chapter 13 plan within the time limits. Immediately alert your attorney or Chapter 13 trustee of any discrepancies.
• Proofs of claims. You should also receive copies of any proofs of claims filed by your creditors, usually within 90 days from the first date of your first meeting of creditors. Creditors must file claims by the claims deadline if they wish to participate and get paid through your Chapter 13 plan. If you dispute a creditor's claim, you should immediately contact your attorney. You may have to file an objection to that creditor's proof of claim. (See Objecting to a Proof of Claim for more information.)
• Bankruptcy court filings. A broad range of things can happen during your Chapter 13 bankruptcy. Here are a few examples:
  • A mortgage lender or other secured creditor might file a motion for relief from stay.
  • A creditor might object to your plan.
  • Your Chapter 13 trustee might seek to dismiss your case because you didn't file all the necessary papers.

Whatever the matter might be, don't ignore court documents. Contact your attorney for more information. Very often, these filings have strict timelines you must follow.

• Creditor communications. You might also receive letters or non-bankruptcy court filings from creditors if the creditor does not know about your Chapter 13. Or the creditor could knowingly be violating the automatic stay (the order that prohibits creditor collections). Your attorney will likely give the creditor your bankruptcy information (case number, date of filing, the location of the court, and trustee contact information), and other pertinent documents, such as a notice of the Chapter 13 bankruptcy and the meeting of creditors.

When Circumstances Change

Despite all of your best efforts to stick to your budget, things can happen that are beyond your control, such as a job loss, illness, income changes, or other budget changes (for example, your car breaks down, and you need to buy another one). You'll want to resist the urge to stop making payments or attempt self-help such as taking out a loan on the side (which might not be allowed anyway).

Instead, your attorney can tell you about things that the bankruptcy court can do to ease you through a rough patch, including:

• temporarily suspending or modifying your plan payments
• extending the length of your plan (but you can't exceed the 60-month time limit)
• granting you permission to incur new debt, such as a replacement car loan, or
• allowing you to refinance an existing, pre-petition secured debt, like a mortgage.

Your attorney will let the Chapter 13 trustee know of any changes or file the appropriate motion.

Sometimes changes in your situation make it so that Chapter 13 is no longer in your best interest, and you might need to dismiss your case or convert it to Chapter 7. To learn more about your options when your circumstances change, read When You Cannot Complete Your Bankruptcy Plan.