What to Expect When Filing for Chapter 13 Bankruptcy

Filing for Chapter 13 bankruptcy can feel like a daunting process, even if you've been through it before. There are a few things you should be prepared to encounter along the way. Here are three issues a Chapter 13 Bankruptcy lawyer will tell you to expect.

An Examination of Your Finances

This ends up cutting in two different directions. First, there will be questions about whether you need to go through a Chapter 13-style debt restructuring at all. For example, someone with a handful of major creditors may be able to negotiate payment plans directly with those companies. Also, the system looks closely at filers' debts and incomes to ensure that only people who need to restructure their debts are filing.

The second set of questions pertains to whether Chapter 13 is appropriate given your debt load. A judge is not likely to approve a petition for restructuring if they feel the person has no chance of pulling off the payment plan. Instead, someone with severe debts may be encouraged to liquidate their assets through a Chapter 7 filing. 

Putting Together a Plan

Repayment of debts is a central feature of any Chapter 13 proceeding. Debtors are supposed to assemble repayment plans that they believe they can faithfully execute within three to five years. Creditors are typically asked to make cuts on some of the debt they're owed, but most will come away with the majority of the debt.

Creditor Protections

Some protections are put in place to protect the interests of creditors. In particular, a trustee will be appointed by the court to supervise the process. This individual is empowered to raise questions about the process, and they will make recommendations to the judge.

A meeting of creditors will also occur. During the meeting, the creditors will have the right to raise objections to the content of a restructuring plan. They even have the legal right to demand that the debtor provide testimony under oath.

Creditors are empowered to seek discovery of evidence related to the petition. For example, a creditor can raise doubts about whether a debtor has fully disclosed all of their available income and assets. You will likely be required to turn over all documentation the creditors' demand, and failure to produce the documents may result in sanctions. A sanction can range from an adverse inference, an inference by the court that the undisclosed materials must be 100% bad for your case, to criminal charges for bankruptcy fraud.