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Bankruptcy Basics: Right to Rescind Reaffirmation.

Debtors should be advised that a reaffirmation agreement may be canceled at any time before the entry of the discharge order, or sixty days after the agreement is filed with the court, whichever occurs later. 11 U.S.C. § 524(c)(4). No reason is required for canceling a reaffirmation agreement, but notice of the cancellation must be given to the creditor.

Bankruptcy Basics: Debts Excepted from Discharge Only If Timely Action Brought.

Another group of debts may be nondischargeable under section 523(a), but only if the particular creditor seeks a determination from the bankruptcy court by filing an adversary complaint within a strict time limit (sixty days after the date first set for the meeting of creditors) and proves that the debt should not be discharged. 11 U.S.C. § 523(c); Bankruptcy Rule 4007(c). These types of debts include:

Bankruptcy Basics: Introduction

Most of the initial steps in a chapter 13 case are quite similar to those in chapter 7. The major difference is that in chapter 13 a reorganization plan is filed. Debtors must also begin making payments under that plan within thirty days after filing. The following overview points out some of the other significant differences in procedure in chapter 13 cases.

Bankruptcy Basics: Eligibility

Chapter 13 is available to “individuals with regular income” who live in the United States or have a place of business or property in the United States. A debtor with “regular income” includes not only wage earners but also recipients of government benefits, alimony or support payments, or any other regular type of income.

Bankruptcy Basics: First Steps

As in chapter 7, a chapter 13 bankruptcy case begins with the filing of a nine-page petition, and the additional schedules, statement of financial affairs, counseling certificate, and payment advices must be filed either with the petition or shortly thereafter (generally fourteen days after the petition date). Rather than Official Form 122A-1, the chapter 13 debtor files a statement of current monthly income and, if necessary, a calculation of commitment period and disposable income (Official Forms 122C-1 and 122C-2).

Bankruptcy Basics: Codebtor Stay

Unlike chapter 7, the automatic stay in a chapter 13 case also puts into effect a stay that prevents creditors from taking any action against codebtors (cosigners) who have not filed for bankruptcy, if the debt is being paid under the debtor’s chapter 13 plan. 11 U.S.C. § 1301. This stay prevents, for example, a creditor from pursuing collection against a friend or family member who may have cosigned a loan with the debtor. It applies only to “consumer debts,” as defined in 11 U.S.C. § 101(8).

Bankruptcy Basics: Chapter 13 Trustee

The chapter 13 trustee has more to do than the chapter 7 trustee. In addition to the duties of a chapter 7 trustee, the chapter 13 trustee must review the debtor’s plan to ensure that it complies with the law and object to confirmation if it does not. If the plan is confirmed, the chapter 13 trustee collects the debtor’s payments and distributes that money to creditors who have filed a proof of claim. The chapter 13 trustee is usually entitled to a commission of about ten percent of the payments made through the plan.

Bankruptcy Basics: The Debtor’s Plan

The debtor’s plan payments are based on the debts to be paid under the plan, the requirements of chapter 13, and the debtor’s ability to pay based on disposable income. If the debtor’s income is above the state’s applicable median family income (based on household size), the amount required to be paid to unsecured creditors is based on a formula similar to the means test under chapter 7. 11 U.S.C. § 1325(b)(3). It considers the actual amounts the debtor spends for some expenses but uses fixed amounts based on IRS collection guidelines for other expenses.

Bankruptcy Basics: Length of Plan

A chapter 13 plan normally provides for monthly payments to the bankruptcy trustee over a period of three years. However plans can last up to five years if the court, for cause, approves a longer period. 11 U.S.C. § 1322(d). Consumers with incomes above the state’s applicable median family income may be required to either remain in chapter 13 for a five-year period or make payments that equal the amount paid in a five-year plan, in what is referred to as the “applicable commitment period.” 11 U.S.C. § 1325(b).

Bankruptcy Basics: Three Options.

In addition to the right to cure defaults, section 1325(a)(5) provides three ways for a debtor to deal with secured claims in a chapter 13 plan (which are discussed more fully in Chapter 8, infra):

Bankruptcy Basics: Interest.

To satisfy the present value requirement, interest generally must be paid on an allowed secured claim, but this interest may be different than the contract rate. 11 U.S.C. § 1325(a)(5)(B). The Supreme Court in Till v. SCS Credit Corp., 541 U.S. 465 (2004), held that the proper formula to be used in calculating the interest required is to use the prime rate of interest as the starting point, and then adjust it by a factor for risk.

Bankruptcy Basics: Bifurcation.

In determining the allowed amount of a secured claim section 506(a) provides that the claim is secured only to the extent of the value of the collateral, and that any amount of the claim in excess of the value of the collateral will be treated as an unsecured claim. This bifurcation or “cramdown” of the creditor’s claim means that the unsecured portion of the claim will be paid with other unsecured claims, based on the plan’s treatment of unsecured claims, often providing payment of less than one-hundred percent.

Bankruptcy Basics: Plan Payments

The debtor must begin making plan payments to the trustee within thirty days after filing the petition, unless the court orders otherwise. 11 U.S.C. § 1326(a). In most jurisdictions bankruptcy courts routinely approve requests to have the monthly payments to the trustee paid automatically by wage deduction. Depending upon the terms of the debtor’s proposed plan, or if required by the court, the debtor may need to begin making adequate protection payments directly to some secured creditors within thirty days after filing the petition. 11 U.S.C. § 1325(a)(5)(B)(iii).

Bankruptcy Basics: Nondischargeable Debts

Before the 2005 amendments, the discharge received in a chapter 13 case was broader than its counterpart in chapter 7, and was often referred to as the “superdischarge.” Now most of the debts that are nondischargeable in chapter 7 are treated in the same manner in chapter 13, including debts incurred by certain types of fraud and unlisted debts. With respect to debts incurred by fraud, Bankruptcy Rule 4007(c) provides that the same time limits that are applicable to other chapters are applicable in chapter 13 cases.

Bankruptcy Basics: Schedule H

Schedule H is a list of codebtors, other than a spouse in a joint case, who are obligated on any of the debtor’s debts.

Consumer Bankruptcy Law and Practice: 7.3.7.6 Schedules I and J: Income and Expenses

The last two parts of Official Form 106 are schedules I and J, which require a complete disclosure of the debtor’s income and expenses. In chapter 7 cases, these schedules are intended to provide information that could help a bankruptcy court to determine whether a chapter 7 case might be an “abuse” and therefore subject to dismissal under 11 U.S.C.

Bankruptcy Basics: Official Form 106 Instructions

Schedule A/B: Property (Official Form 106A/B)

Schedule A/B: Property (Official Form 106A/B) lists property interests that are involved in a bankruptcy case. All individuals filing for bankruptcy must list everything they own or have a legal or equitable interest in. Legal or equitable interest is a broad term and includes all kinds of property interests in both tangible and intangible property, whether or not anyone else has an interest in that property.

Bankruptcy Basics: 2015 Advisory Committee Note on Form 106

The schedules to be used in cases of individual debtors are revised as part of the Forms Modernization Project, making them easier to read and, as a result, likely to generate more complete and accurate responses. The goals of the Forms Modernization Project include improving the interface between technology and the forms so as to increase efficiency and reduce the need to produce the same information in multiple formats. Therefore, many of the open-ended questions and multiple-part instructions have been replaced with more specific questions.

Bankruptcy Basics: 2013 Advisory Committee Note on Form 6

Schedule I: Your Income (Official Form 6I) and Schedule J: Your Expenses (Official Form 6J), which apply only in cases of individual debtors, have been revised as part of the Forms Modernization Project, making the forms easier to read and, as a result, likely to generate more complete and accurate responses.

Bankruptcy Basics: 2005–2007 Advisory Committee Note on Form 6

The forms of the Schedules of Assets and Liabilities are amended to implement the provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23, (April 20, 2005) (“BAPCPA”). An amendment that directs the debtor to avoid disclosing the name and address of any minor child occurs in Schedules B, D, E, F, G, and H in conformity with § 112 which was added to the Code in 2005.