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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.

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.

Consumer Bankruptcy Law and Practice: 7.3.8 The Statement of Financial Affairs (Official Form 107)

The statement of financial affairs (Official Form 107) is also required in both chapter 7 and chapter 13 cases.180 Every question must be answered, but the form is simple to fill out. Most questions have a box labeled “No” that should be checked if that is the appropriate response to a given question.

Spouses filing a joint petition may file a single statement. Debtors engaged in business must provide the requested information for all unincorporated businesses, as well as for their personal affairs.

Consumer Bankruptcy Law and Practice: 7.3.11 The Statement of Intention with Regard to Property Securing Consumer Debts (Official Form 108)

Another required document in chapter 7 cases is the statement of intention regarding debts secured by property of the estate and leased personal property.220 This document must state certain intentions of the debtor, as of the date of its filing, with regard to any property, real or personal, that serves as collateral for a debt. In addition, Official Form 108 requires the debtor to state the debtor’s intentions with respect to leases of personal property.

Consumer Bankruptcy Law and Practice: 11.4.2.1 Generally

Section 521 was amended in various respects by the 2005 amendments, and a number of related provisions were also enacted. The changes in statutory language arguably did nothing to change the result of earlier cases that held that a debtor could retain property subject to a security interest if the debtor remained current on payments and other contract obligations. Those cases were based on the plain language of the Code, which in all material respects is unchanged.

Fair Debt Collection: 10.1 Introduction

This chapter discusses the specific requirements the Fair Debt Collection Practices Act (FDCPA) imposes on debt collectors under 15 U.S.C. §§ 1692h, 1692i, and 1692j. FDCPA § 1692h addresses the application of payments when a consumer owes multiple debts to a debt collector. FDCPA § 1692i defines the acceptable venues where lawsuits can be filed to collect a debt.

Fair Debt Collection: 10.3.1 Text of FDCPA § 1692i, Legislative History, and Regulations

(a) Any debt collector who brings any legal action on a debt against any consumer shall—

(1) in the case of an action to enforce an interest in real property securing the consumer’s obligation, bring such action only in a judicial district or similar legal entity in which such real property is located; or

(2) in the case of an action not described in paragraph (1), bring such action only in the judicial district or similar legal entity—

Fair Debt Collection: 16.2.4.4.1 Introduction

Deceptive debt collection tactics have been the subject of frequent decisions under state debt collection statutes. Courts often draw on the standards developed under the Federal Trade Commission Act, the Fair Debt Collection Practices Act, and UDAP statutes when applying these provisions.264

Fair Debt Collection: 10.3.2 Where Suit Can Be Filed

This section prohibits a debt collector, including attorney debt collectors, from taking legal action to collect a consumer obligation in a “judicial district or similar legal entity” other than where the consumer resides or signed the contract14 or, in the case of real estate, where the property is located.15 This section is built upon an approach adopted by the FTC and the courts prior to the FDCPA’s enactment.16

Fair Debt Collection: 16.2.4.4.6 Wrongful garnishment

Knowingly garnishing an account containing only exempt Social Security benefits violates the Iowa Fair Debt Collection Practices Act and the unconscionable debt collection provision of the Iowa Consumer Credit Code.309 Garnishing a servicemember’s bank account without filing the affidavit required by the Servicemembers Civil Relief Act violated the Washington Collection Agency Act.310 A bank’s freezing of a customer’s account to force them to pay their consumer debt to another bank may be a stat