A Chapter 13 does not negotiate your debts. When you file a Chapter 13 bankruptcy, your creditors get notified as part of the process. The creditors have 9 weeks to file a claim.
If they do not file a claim, they don’t get paid any distribution and that debt still gets discharged. You do not necessarily pay 100% of your debt back in a Chapter 13 bankruptcy. The amount of the payment is based on your income and expenses. They look at your gross income, the payroll deductions, and the disposable income in your budget.
There is another basis for determining your payment called the means test which uses some of your actual expenses, while other expenses are compared to the IRS guidelines for your household size and county where you live. For example, it would list what the food budget should be for a household size for four people living in Hillsborough County.
The means test will arrive at an amount of what you would need to pay to your unsecured creditors during your Chapter 13 plan. The amount of the plan is not discretionary, it’s not negotiated, rather there is a precise formula for determining the payment.
You want to be sure to capture and account for all of your expenses to get your payment as low as possible. Whatever the amount, your creditors will receive a pro rata distribution which is paid monthly by the trustee and at the end of your plan the total amount of your debt is discharged.
There are occasions where I get phone calls from potential clients where either a bank account has been “frozen” or money has been seized by a creditor out of their account or their wages have been garnished out of their paycheck.
This can lead to a very dire situation if you are living paycheck to paycheck and money that you are counting on to buy groceries or pay rent is now gone. When that occurs, our first step is to analyze whether the creditor appropriately garnished your wages or bank account. For example, if the source of the money in your bank account is social security funds, those funds would be exempt from garnishment.
If that is the case, you might be able to file a claim of exemption in the underlying case to see if the judge would reverse the garnishment order and “unfreeze” those funds.
Filing for bankruptcy will immediately stop any collection efforts in the future. If the creditor was entitled to the garnished funds, they are not required to retroactively reimburse you for those funds that were taken before you filed your bankruptcy case. If the creditor garnishes anything after you file your bankruptcy case, you would be entitled to get those funds reimbursed.
Whenever you get served with a lawsuit, it is important to speak with an attorney as soon as possible to determine if you do have any exemptions to the garnishment and to discuss the best timing for filing your bankruptcy case. That way the situation can be handled to ensure that you prevent a garnishment.
When you file a bankruptcy case, there is a hearing called a “341 meeting of creditors”.
The meeting of creditors takes place whether you file a Chapter 7 or a Chapter 13. It occurs thirty days after your bankruptcy petition is filed. The meeting lasts about 10 minutes, and it is telephonic not over zoom.
There is a conference bridge so when you call in, everyone (you, your attorney, and the trustee) will be on the phone line. You will be prepared for the hearing because we thoroughly review all the documents the trustee will ask you about when we prepare the petition. Since everything is disclosed on the bankruptcy petition and your documents are provided to the trustee in advance of the meeting, your attendance at the hearing should really be a formality to getting your discharge.
If there is anything special about your case, such as being over the exemption amount you would know that in advance of filing your case so there should be no surprises. Many people ask if all their creditors show up for the meeting. It’s a bit misleading that it’s’ called a meeting of creditors because it is extremely rare that any creditors appear for the meeting.
Creditors appear in probably in less than 1% of cases. There would likely have to be a special issue such as a lender asking where the debtor’s car might be located if they are surrendering it or a creditor that the debtor personally knows. Typically, the meetings run very smoothly and on time.
