Tips for Surviving Chapter 13 Bankruptcy

Follow these tips to ensure successful completion of your Chapter 13 bankruptcy case.

Chapter 13 bankruptcy is a three to five-year proceeding that requires you to commit to a new way of thinking about and handling your finances. In Chapter 13 bankruptcy, you pay back debts in full or in part (depending on the type of debt and some other factors) over three to five years under a Chapter 13 repayment plan. (To learn more, see our Chapter 13 Repayment Plan area.)

Living on a strict budget and financial plan for three to five years isn't always easy. The key to surviving in a Chapter 13 bankruptcy is to learn and consistently follow these basic tips. Do that, and these changes will become habits for you, ensuring your successful completion of Chapter 13.

Mastering the Chapter 13 Paperwork

The average bankruptcy petition, schedules, and Chapter 13 repayment plan can run up to 40 pages or more. On it, you'll have to provide a lot of information about your debts, assets, income, expenses, and financial history. If you leave anything out, and it could come back to haunt you later on in the Chapter 13 proceeding. For instance, if you leave a creditor out, that debt might not be discharged, you might have to amend your plan, or your case might be dismissed. In some cases, leaving out information could subject you to criminal penalties.

You must also gather, organize, and maintain your financial records, including bank statements, tax returns, and paystubs. If you don't have them, make arrangements to obtain them immediately. If you have not prepared or filed income tax returns, you must do so before filing bankruptcy. Once your personal financial documents are in order, be prepared to supply them to your attorney or the Chapter 13 trustee at a moment's notice. Stay in the habit of keeping good financial records throughout the life of your Chapter 13 plan. You may need them if you have to make changes to your plan or deal with other issues later on.

Filling out all of the bankruptcy papers can be time-consuming, frustrating and difficult. But once you get past this paper test, you will find that the rest of your bankruptcy journey will run more smoothly. When preparing your paperwork, you'll want to be:

  • honest

  • accurate, and

  • thorough.

You'll be better prepared to respond to questions at the 341 meeting of creditors, know your budget, understand your Chapter 13 plan, and adjust to lifestyle changes while in a Chapter 13 bankruptcy.

Creating and Living Within Your Budget

Your Chapter 13 bankruptcy won't work if you do not, or cannot, make your plan payments. Your Chapter 13 plan is based on a two-part calculation:

  • the amount of debts that must be repaid in the plan, and
  • your ability to pay those debts.

Obviously, you have less control over the amount of your debts than you do with your budget.

How Your Budget Plays a Role

In a Chapter 13 bankruptcy, your ability to pay is based upon your disposable income. Your disposable income is what you must pay into your Chapter 13 plan each month. It is calculated by deducting your monthly personal and household expenses from your monthly take-home income. Some of your expenses might be discretionary, such as cable TV. In putting together your budget, you can cut discretionary expenses if you need to increase disposable income to pay the minimum debt load in your Chapter 13 plan.

Creating a budget and analyzing your plan payments also serves as an important reality check for you. 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 now know what to expect going into Chapter 13 and can plan accordingly. Stay committed to that budget for the next three to five years, and you should succeed in a Chapter 13.

Staying in Communication

Once your Chapter 13 plan is confirmed, your bankruptcy case is not over. A variety of things do and can happen during the three to five years that your Chapter 13 is pending. Do not ignore mail that your receive from your attorney, Chapter 13 trustee, or any creditors (or creditors' attorneys).

Trustee Reports and Proofs of Claims

Familiarize yourself with 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 out 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 may 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.

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.)

Other Bankruptcy Court Filings

A broad range of things can happen during your Chapter 13 bankruptcy. A mortgage lender or other secured creditor might file a motion for relief from stay. A creditor may object to your plan. Your Chapter 13 trustee may seek to dismiss your case because not all papers have been filed. Whatever the matter might be, do not ignore the documents and contact your attorney or Chapter 13 trustee as soon as you receive the filings for more information. Very often, these filings have strict answer and hearing notices that you must follow and attend if you dispute anything.

Other Communications

You may also receive letters or non-bankruptcy court filings from creditors. This may mean that the creditor does not know about your Chapter 13, or could knowingly be violating the automatic stay. Do not ignore these documents. Contact your attorney right away. You should also give the creditor your bankruptcy information (case number, date of filing, location of court and trustee contact information), preferably in writing. Try to include a copy of the Notice of Chapter 13 Bankruptcy Case, Meeting of Creditors and Deadlines (or similar notice from the bankruptcy court containing your bankruptcy case information), which you should have received shortly after filing bankruptcy.

Dealing With Changed Circumstances During Your Case

Despite all of your best efforts to stick to your budget, things can happen that are beyond your control, such as job loss, illness, income changes, or other budget changes (for example, your car breaks down and you need to buy another one). Resist the urge to stop making payments or attempt self-help by crushing your budget or taking out a loan on the side (which might not be allowed anyway). There may be things 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 (if you don't exceed the 60-month time limit)

  • granting you permission to incur new debt, such as a replacement a car loan, or

  • allowing you to refinance an existing, pre-petition secured debt, like a mortgage.

Let your attorney, or Chapter 13 trustee, know of any changes. It may also be that Chapter 13 is no longer in your best interest, and you may need to dismiss or convert your Chapter 13 case to Chapter 7, which is not always a bad thing. (To learn more about your options when your circumstances change, see the articles under When You Cannot Complete Your Bankruptcy Plan.)

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