CHAPTER 13 BANKRUPTCY: IOWA
When someone files for bankruptcy under Chapter 13 of the Bankruptcy Code, their aim is to have the opportunity to repay some or all the debts in their name. Creditors are paid pursuant to a Chapter 13 Plan that is set up by the debtor and his or her attorney. The plan is normally 36 to 60 months long. The Chapter 13 plan must be approved by the Court. Usually the Plan has better repayment terms such as lower car payments and 0.00% interest to unsecured creditors. The Plan also allows people to catch up on any delinquent house payments. This allows people to rescue their home from foreclosure.
Some of the reasons people choose to file Chapter 13 in Iowa are:
- You have a sincere desire to repay your debts, but you need the protection of the bankruptcy court to do so. You may think filing Chapter 13 bankruptcy is simply the “right thing to do.”
- You are behind on your mortgage or car loan, and want to make up the missed payments over time and reinstate the original agreement. You cannot do this in Chapter 7 bankruptcy. You can make up missed payments only in Chapter 13 bankruptcy.
- You need help repaying your debts now, but need to leave open the option of filing for Chapter 7 bankruptcy in the future. This would be the case if for some reason you can’t stop incurring new debt.
- You filed a Chapter 7 bankruptcy within the previous eight years. You cannot file for Chapter 7 again until the eight years are up.
Once again, filing for bankruptcy under Chapter 13 gives you the opportunity to repay your some or all of your debts over a longer period of time. Once you file a Chapter 13 bankruptcy petition, creditors are no longer permitted to foreclose on your house, sue you, garnish you, call you, write to you, or take any other steps to collect debt. In Iowa, a Chapter 13 bankruptcy trustee processes the payments each month and monitors the Plan to make sure everything is administered properly.
Who Can File For Chapter 13 Bankruptcy?
The most important criteria for a person to be able to file for Chapter 13 bankruptcy is that the individual must have a regular income. Other factors that determine if you qualify to file a Chapter 13 bankruptcy are:
- The debtor must be able to pay all of their regular monthly expenses (house, car, electric, medical, etc. – credit card payments are not included)
- The debtor received a discharge under Chapter 7, 11 or 12 more than four years ago; or
- the debtor received a discharge under Chapter 13 more than two years ago.
Steps For Filing Chapter 13 Bankruptcy?
Chapter 13 bankruptcy can be significantly more complex and require more finesse than a Chapter 7 bankruptcy. Know that the attorneys at Marks Law Firm have the experience necessary to help you obtain the very best result. Some highlights of the process of filing a Chapter 13 bankruptcy include but are not limited to:
- Determine whether Chapter 13 is the best solution for you by first determining what you need to accomplish.
- Prepare a budget.
- Determine and implement methods of dealing with secured creditors and priority.
- Devise a chapter 13 plan, fill out the forms, and file your case.
- Pay the filing fee and complete the process of filing the forms and pleadings.
- Attend the Court Ordered 341 meeting
- Receive a discharge once all the payments have been made.
Chapter 13 Bankruptcy Plan – Iowa
Every person who files Chapter 13 must file a Chapter 13 plan. Every Chapter 13 plan must comply with the following criteria:
- The plan must be proposed in “good faith;”
- Best Interest of Creditors Test: the plan must pay to unsecured creditors at least as much as the unsecured creditor would have received in a chapter 7 bankruptcy;
- Best Efforts Test: the plan must provide that the debtor pays an amount equal to the debtor’s monthly disposable income.
- The plan must also provide for payment in full of priority claims (most commonly taxes, child support, and alimony);
Who Makes The Plan?
The debtor proposes a plan to the Court for approval. A copy of the plan is mailed to each creditor. Each creditor has the opportunity to object. Creditors’ objections are limited in Chapter 13. They don’t get to vote on whether they will accept the plan. They can object only if they contend the plan does not meet the criteria listed above. A secured creditor has the option to object to the value that the plan places on the creditor’s collateral (normally we see this with automobiles). If the parties can’t reach a compromise, the judge will decide the question.
How Much Are the Plan Payments and How Are They Made?
The amount of the payment each month is the amount of the debtor’s disposable income. Payments can be the same over the life of the plan; they can start low and increase at intervals; or they can vary with the seasons.
As previously stated, In Iowa, a Chapter 13 bankruptcy trustee processes the payments each month and monitors the Plan to make sure everything is administered properly. The debtor must make the first payment on the plan within 30 days of the filing of the plan and each month thereafter. If you stop making plan payments, the trustee will ask that your case be dismissed. If, however, your circumstances change, sometimes the Plan that has been approved by the court can be changed to conform to the new set of circumstances.
In addition to your plan payments, you must stay current with any ongoing obligations you have to secured creditors, such as on your mortgage. Secured debts (your mortgages) must be repaid in full, but Chapter 13 Bankruptcy enables you to cure the defaults (reinstate the loans) over 36 months (or up to 60 months with creditor consent and court approval).
How much of my income must be paid under a Chapter 13 plan?
A good rule of thumb is that your plan payment will be the amount of your disposable income. “Disposable income” is defined as any income that you receive over that which is not reasonably necessary for you and your dependents’ support. In effect, disposable income is what is “left over” after paying your necessary living expenses. This rule is not absolute and there are many factors that go in to determining the amount of the monthly payment. You can use this rule as a basic guideline.
What if I begin a Chapter 13 but am temporarily unable to make the payments?
Plans can be changed if there is an interruption of income, through job loss or ill health. Plan payments can be lowered or the percentage paid to creditors changed if the debtor’s income or expenses in the future won’t fund the plan as originally confirmed. The modified plan must meet the same criteria as the original plan (see above). Additionally, if it appears that your inability to make the required payments will continue for an extended period, the case may be dismissed or converted to Chapter 7.
How long does a Chapter 13 Bankruptcy take to complete?
Typically, the plan payments last between 36 – 60 months. The length of time for the plan is determined by the debtor’s income. At the end of plan you are discharged from all dischargeable unsecured debts, regardless of how much your creditors have received. More plainly stated, at the end of your Chapter 13 plan you receive a fresh start!
How does filing under Chapter 13 affect my credit?
Chapter 13 is a bankruptcy proceeding. It wouldn’t be honest to represent otherwise. Like any bankruptcy, a Chapter 13 will have a negative effect on your credit rating. The bankruptcy will appear on your credit report for 10 years after you file. This means you will only have 5-7 years left with the bankruptcy on your credit report. While no one can tell you with any degree of certainty how bankruptcy affects your credit score, it is believed that your credit improves quicker and is therefore less damaged than had you completed a Chapter 7 bankruptcy.
Call or contact Marks Law Firm to set up a free, no obligation consultation. We’ll listen to your story, discuss your situation and help you to determine how you can best deal with your debt situation.
to discuss your situation.