Chapter 13 provides clients with an opportunity to reorganize their debts and pay creditors back in an organized and fair way. This reorganization is outlined in a Chapter 13 “Plan” which is filed along with your bankruptcy petition. The plan explains to the Court, your Chapter 13 Trustee and your creditors exactly how you propose to pay them back. Creditors must receive notice of your bankruptcy and file a “Proof of Claim” or POC by the deadline in order to get paid through your plan.
When you file your bankruptcy petition, notice goes out to all of your creditors. This is important because your creditors must know that you are filing bankruptcy in order to comply with the “automatic stay,” which prevents creditors from demanding payment from you, repossessing a vehicle or foreclosing on a home, suing you or garnishing your wages. The notice form that is sent to your creditors explains when and where your 341 meeting is scheduled and the creditors’ deadline for filing a Proof of Claim. If the creditor fails to file a Proof of Claim by the deadline, often called a “Claims Bar Date,” the creditor will not be paid through your plan. While this is not a big deal if it is an unsecured creditor that failed to file a claim, it is a critical problem if you filed your Chapter 13 in order to pay back a secured or priority creditor that didn’t file a claim.
The Claims Bar Date or deadline for filing Proofs of Claim is about three months after your 341 meeting (four months after the initial filing of your petition and plan). Your attorney will review the claims filed in your case to be sure that claims were filed for the debt you want to pay, such as mortgage arrears, a vehicle loan or back taxes. The claims filed in your case are paid in accordance with your plan, which follows a certain general pattern:
- Administrative costs such as your attorney fees are paid first, sometimes in conjunction with an “Adequate Protection Payment” to your secured creditors
- Secured debt such as mortgage arrears, vehicle loans and some debts that are secured by household goods
- Priority debt such as back taxes or back child support, or other non-dischargeable debt that you wish to pay in full through your plan
- Unsecured debt such as credit cards, overdraft charges, medical bills and broken lease or cell phone contract fees
You make your plan payments to the Chapter 13 Trustee either directly or through automatic payroll deduction, and the Trustee then pays your creditors with those funds.
If you have questions about how you can reorganize your finances and get back on the right track with a Chapter 13 bankruptcy, set up an appointment to talk to one of our attorneys today!
