This article discusses what you need to know about Wisconsin Chapter 13 Bankruptcy.
The Repayment Plan for Chapter 13 Bankruptcy
You must have enough income to cover certain debts over a three- to five-year repayment schedule under Chapter 13. Determine which duties you'll have to fulfill.
One of the most significant distinctions between Chapter 7 and Chapter 13 bankruptcy is that under Chapter 13, you repay some or all of your debts to creditors over a three- to five-year repayment schedule.
Shortly after submitting your case, you'll begin making payments on your recommended plan. At the confirmation hearing, the court will approve your plan if it follows all of the bankruptcy payment regulations. For more information on Chapter 13 repayment plans read our article, Wisconsin Chapter 13 Bankruptcy Repayment Plans Explained.
What Is the Chapter 13 Repayment Plan and How Does It Work?
A Chapter 13 plan is difficult to complete because you must devote all of your income for three to five years. To begin, you'll need enough money to cover your usual expenses, such as rent or mortgage payments, car payments, utility bills, and other monthly obligations. Your responsibilities, however, will not end there.
You'll have to make up the missing payments through the plan if you're behind on your mortgage, car payment, or other secured debt (an obligation backed by collateral). You must also pay off certain obligations, referred to as priority debts, in full. Support arrears and recently incurred tax liabilities are common priority debts. Any residual money must be used to pay off additional debts such as credit card obligations, medical bills, and personal loans. After you complete your payments, any amount of these balances that you cannot pay in full (excluding student loans) is dismissed (erased).
However, your financial obligations do not end there. Unlike in Chapter 7, the trustee in Chapter 13 does not sell any of your belongings. You must, however, pay for all assets that aren't covered by an exception in your plan. If you would have lost the property in Chapter 7, a simple rule of thumb is that you will have to pay for it in Chapter 13.
The bankruptcy judge will not confirm your plan if you are unable to achieve all of these requirements.
Paying Debts in a Chapter 13 Repayment Plan
Debts of the highest priority (other than child support owed to a government agency.)
Priority debts must be paid off completely as part of your plan. The following are debts that must be paid first:
- Child support owing to a spouse or child, wages, salaries, or commissions you owe to employees, and payments you owe to an employee benefit fund are all covered by most federal and state back taxes.
- Secured Debts That Are Due During the Plan's Life
If you have a secured debt that is due to expire within the period of your plan (for example, a home equity or auto loan), you must pay it off completely throughout the plan's term. However, in some cases, you may be able to lower the sum of a car loan or another secured debt.
Secured Debts That Aren't Due During the Plan's Life
These must also be paid through your plan. A tax lien on your home is an example.
Defaults on Your Mortgage, Car, or Other Secured Property
You must pay off the arrearage through your plan if you want to keep the property.
The Amount your Unsecured, Nonpriority Creditors Would Have Received if You Filed for Chapter 7 Bankruptcy
This is the bare minimum you must pay under your plan. Depending on your disposable income, you may have to pay more (see the last item on this list). You will not be eligible for Chapter 13 if you cannot afford this sum. In a Chapter 7 bankruptcy, however, your creditors are unlikely to obtain full payment—the amount they receive is determined by how much of your property is exempt. As a result, your Chapter 13 plan is unlikely to result in you paying your creditors in full.
Expenses for Administration
The filing fee for bankruptcy, the trustee's fee, and attorney's fees are all examples of these costs.
What Happens to the Money You Have Left Over?
The concept is that after you've paid certain allowed expenses, whatever money is left over must be used to pay your creditors. You won't be able to come up with a payment plan that allows you to go to the spa or take a trip to Europe each month.
Some debts are paid directly to creditors, while others are paid through your repayment plan. It will rely on the requirements of your bankruptcy court.
Payments on your Mortgage
If you want to keep your house, you must continue to make your normal monthly payments during the bankruptcy process. The courts are split on whether you must make mortgage payments directly to your lender or through the Chapter 13 plan. If at all possible, make payments outside of the plan. You'll pay more in the long run if you pay them through the plan because the trustee receives around 10% of all payments made via the plan.
Payments on a Car
If you're using your plan to pay off an arrears on your car loan, you could have to use it to make your monthly auto payments as well. If you're paying an arrearage on other secured debts through the plan, you'll be able to pay those off as well.
Other Payments That Have Been Made Recently
You make your current payments outside of the plan for things like utilities, rent, phone, child support, and taxes during your Chapter 13 bankruptcy.
How Long Does the Chapter 13 Strategy Last?
In Chapter 13, filers with a higher income pay more to their creditors. Your income will determine whether your plan must last three or five years. You'll begin by comparing your income to the state's median income. You can suggest a three-year plan if your income is less than the state's median income. Your plan must last five years if your salary is higher than the state's median income.
You must multiply your average gross income for the six months prior to filing for bankruptcy by two for this rule to apply. On the U.S. Trustee Program website, you may find out what your state's median income is.
The Confirmation Hearing for Chapter 13 Bankruptcy
However, simply submitting a Chapter 13 strategy is insufficient. A confirmation hearing will be held by the court. The court will decide whether to approve (or confirm) your proposed repayment plan at this hearing, which is the most important part of your Chapter 13 case. The court will reset your obligations after your plan is approved, and your creditors must accept your payments as settlement for their claims.
When Will the Confirmation of Chapter 13 Take Place?
The confirmation hearing in your Chapter 13 case must take place within 45 days of the creditors meeting. The court will give notice of the hearing ahead of time. If there are pending matters before the court that must be resolved before the court can confirm your plan, it is not uncommon for the hearing to be continued one or more times. The confirmation hearing may need to be postponed until the deadline for creditors to make claims in your case has passed, depending on your plan.
To request that the hearing be continued, you or your attorney must usually appear on the stated day. Each court has its own set of rules and regulations. Check the court's website or the website for any active Chapter 13 trustees in your area to learn more about the procedures in your area.
Is it necessary for me to attend the Chapter 13 Confirmation Hearing?
In many circumstances, only lawyers are present in the confirmation hearing; however, this varies per court. You may also be required to participate if other confirmation-related matters are being heard concurrently or if the court so orders. Creditors usually only attend the hearing through their attorney and only if a related issue involving their claim is pending or if they are objecting to your plan. You must attend the confirmation hearing if you are representing yourself.
How does the court decide whether or not to confirm Chapter 13?
Bankruptcy under Chapter 13 is a difficult process. There are numerous factors at play. All of your disposable income (as calculated under bankruptcy regulations) must be used to pay your plan, according to the papers you file with the court. Your plan's duration must be reasonable for your circumstances (three or five years as determined by the bankruptcy laws). You must pay creditors according to their categorization (secured, unsecured, and priority) as least as much as the bankruptcy regulations require.
The court depends heavily on the Chapter 13 trustee to do the case study and report any flaws in your plan and computations to the court. This is accomplished by the trustee disagreeing to your plan. Creditors may also raise objections if they believe your plan fails to properly address their claims. To allow you enough time to prepare, you must file your objections before the confirmation hearing. Before submitting a formal objection, the trustee will usually have addressed any concerns to you or your attorney so that you have time to work out a solution.
If you are unable to reach an agreement, the court may be able to resolve some difficulties after hearing each party's concerns and taking the law into account. Other issues may require the court to present evidence in the form of testimony, papers, or affidavits.
What Happens during the Confirmation Hearing for Chapter 13?
The majority of confirmation objections are resolved through agreement. Depending on the circumstances, the case may still need to be heard by a judge in order for the agreement to be finalized. If the parties are unable to reach an agreement, the issue will be decided by the court. Depending on the conditions, the outcome of the confirmation hearing may differ. The following are typical outcomes.
Your Plan is Confirmed
Your proposal is confirmed if there are no issues with it and no parties object, or if any objections are resolved in your favor. Once this occurs, the provisions of your plan bind both you and your creditors. Creditors must accept the terms of payment of their claims as long as you follow your plan.
Continuation of the Confirmation Hearing
The court may do this to give you more time to deal with confirmation issues, give you more time to work out settlements with your creditors, or change your plan to remedy errors or resolve objections. It's not uncommon for Chapter 13 confirmation hearings to be rescheduled multiple times as long as the court is satisfied that you're using the extra time to address any issues rather than simply delaying the process.
Your Case is Dismissed or Converted to a Chapter 7 Proceeding
If you don't make your payments under the proposed plan, don't have enough income to fund the plan, or the plan doesn't fulfill the law's standards, the court can dismiss your case or convert it to a Chapter 7 bankruptcy. In most cases, you have the opportunity to dismiss your case under Chapter 13. As a result, if you do not request that the case be transferred to a Chapter 7, the court will most likely dismiss it.
What Other Chapter 13 Issues Might Be Discussed?
Objections to confirmation must be considered by the court during the confirmation hearing. Aside from that, court procedures differ depending on the topics that will be heard concurrently with the confirmation hearing. The court may decide whether or not your Chapter 13 payment should be withdrawn from your paycheck immediately. Objections to creditor claims, as well as motions to cram down, avoid, or strip liens on your property, may be heard at the same time. Courts, on the other hand, usually require that these issues be resolved before the confirmation hearing date.
Consult with a Lawyer
Request a consultation with an attorney. Call our office at (630) 324-6666 or schedule a consultation with one of our experienced lawyers today. You can also fill out our confidential contact form and we will get back to you shortly.
To learn about judgement liens on property in Wisconsin read our article.
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