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 under a Chapter 13 repayment plan. The key to surviving in 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 60 pages or more. You'll provide information about your debts, assets, income, expenses, and financial history on it. 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. You'll want to arrange to get them if you don't have them. If you haven't prepared or filed your last four years of income tax returns, you must do so before filing for bankruptcy.

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

The next step is completing the paperwork. And there's no sugarcoating it—filling out all bankruptcy papers can be time-consuming, frustrating, and confusing, and most people need the help of a bankruptcy attorney. Either way, you'll want 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 involving the amount of debt you must repay in the plan and your income or ability to pay your debt. How much you'll pay will depend on your disposable income, calculated by deducting allowed monthly personal and household expenses from your monthly take-home income, and the amount of nonexempt property you own or assets you can't protect with a bankruptcy exemption. Learn more about keeping property in Chapter 13.

Creating a budget and analyzing your plan payments are also important reality checks. 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, you'll know what to expect and can plan accordingly.

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 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. Various 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 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 creditor claims that don't match what you disclosed in your original bankruptcy schedules. You should also watch the numbers. If the creditor claims, as filed, are higher than you estimated, you might have to increase your plan payments and amend other bankruptcy documents to ensure 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. Creditors must file claims by the claims deadline if they wish to participate and get paid through your Chapter 13 plan. You should immediately contact your attorney if you dispute a creditor's 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. 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 prohibiting 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 your best efforts to stick to your budget, things can happen that are beyond your control, such as a job loss, illness, income changes, and car repairs. You'll want to resist the urge to stop making payments. Instead, your attorney can tell you about things that the bankruptcy court can do to ease you through a rough patch, including:

• granting you permission to incur new debt, such as a replacement car loan
• modifying your Chapter 13 payment, or
• if Chapter 13 is no longer in your best interest, dismiss your case, ask for a hardship discharge, or convert it to Chapter 7

Your bankruptcy attorney will file the appropriate motion if unable to work out an informal agreement to temporarily suspend and catch up on the payments with the Chapter 13 trustee. To learn more about your options when your circumstances change, read When You Cannot Complete Your Bankruptcy Plan.