A Chapter 13 case begins when a debtor files a petition with the bankruptcy court serving the area where the debtor has a residence. Unless the court orders otherwise, the debtor also shall file the following documents with the court: (1) schedules (lists) of assets and liabilities; (2) a schedule of current income and expenditures; (3) a schedule of unfulfilled contracts and unexpired leases; and (4) a statement of financial affairs.
To complete the petition, statement of financial affairs, and schedules, the debtor needs to compile certain information, including the following:
- A list of all creditors and the amounts and nature of their claims;
- The source, amount, and frequency of the debtor's income;
- A list of all of the debtor's property; and
- A detailed list of the debtor's monthly living expenses, that is, food, clothing, shelter, utilities, taxes, transportation, medicine, and so on.
Upon the filing of the petition, an impartial trustee is appointed to administer the case. The primary role of the Chapter 13 trustee is to serve as a disbursing agent, collecting payments from debtors due under the plan and, in turn, distributing these payments to creditors.
Furthermore, Chapter 13 contains a special automatic stay provision applicable to creditors. Specifically, after the commencement of a Chapter 13 case, unless the bankruptcy court authorizes otherwise, a creditor may not seek to collect a consumer debt from any individual who is liable with the debtor (that is, a cosigner on a note). Consumer debts are those incurred for consumer, as opposed to business, needs. The debtor must file a plan of repayment with the petition or within 15 days thereafter, unless extended by the court for cause. The Chapter 13 plan must, among other things, provide for the debtor to contribute that portion of his or her future income as is necessary to meet the terms of the plan.
Plans, which must be approved by the court, provide for payments of fixed amounts to the trustee on a regular basis, typically biweekly or monthly. The trustee then distributes the funds to creditors according to the terms of the plan, which typically offers creditors less than full payment on their claims.
The debtor must make regular payments to the trustee, which requires adjustment to living on a fixed budget for a prolonged period. Alternatively, a debtor may consent to the deduction of the plan payments, from the debtor's paycheck, to be sent directly to the Chapter 13 trustee. Experience has shown that this practice increases the likelihood that payments will be made on time and that the plan will be completed. In either case, failure to make the payments in accordance with the confirmed plan may result in dismissal of the case or its conversion to a liquidation case under Chapter 7 of the Bankruptcy Code. With certain exceptions, the debtor has the right to dismiss the Chapter 13 case at any time.
After the meeting of creditors is concluded, the bankruptcy judge must determine at a confirmation hearing whether the plan is feasible and should be approved. Creditors may object to confirmation of the plan based on various grounds that are set forth in the Bankruptcy Code. In that instance, the bankruptcy court will hear and rule on the objections.