Chapter 13 is designed for individuals or married couples with a regular source of income and is often considered to be an “individual reorganization”. A business is not permitted to file a case under Chapter 13, though an individual debtor who is self-employed is able to see bankruptcy relief under this Chapter. Chapter 13 cases are similar in a way to Chapter 11 cases in that the Chapter 13 Debtor is required to propose a debt-adjustment Plan to settle both secured and unsecured debts over a three to five year period which is to be funded in the form of monthly payments by the Debtor to the Trustee appointed in the case. Also, as in a Chapter 11 case, the Debtor remains in possession of all property while the case is pending. The Trustee collects the payments made by the Debtor and pays Creditors as provided in the Court-approved Chapter 13 Plan filed by the Debtor.
A Creditor in a Chapter 13 case must file a proof of claim by a deadline (i.e. the “bar date”) in order to seek to receive payment from the Chapter 13 Trustee. The bar date is a strict deadline for Creditors to assert their claims against the Debtor and provide proof of the existence of the debt and their right to payment. Creditors will also often need legal assistance in regards to preparing these proofs of claim as the form is comprehensive and may require detailed attachments depending on the type of claim you have against the Debtor. Many times Creditors leave “money on the table” by not filing a claim in a bankruptcy case (or by filing a claim after the deadline) since they are unsure of the process and are unsure how to complete the claim form. A bankruptcy Proof of Claim is an important document that needs to be properly handled. Our bankruptcy attorneys have extensive experience in preparing and filing proofs of claim for secured and unsecured creditors in Chapter 13 bankruptcy cases.
A Chapter 13 Debtor is permitted to propose wide-reaching modifications of debts in the Chapter 13 Plan. A Chapter 13 Debtor is permitted to seek to “value” some secured claims with the same result that the Creditor’s secured claim can be reduced or eliminated as a secured claim entirely and rendered unsecured. Typically the Debtor will seek such valuation in a motion filed with the Bankruptcy Court which will be served by mail on the Creditor though the Debtor may also seek to modify the claim through the treatment set forth in the Plan. In many instances the motion will be served by “negative notice” which requires the Creditor to affirmatively oppose the Motion within a very short period of time (usually 14 to 21 days) failing which the Motion will be granted without hearing and without further notice. Alternatively, a Plan will be served on the Creditor with a proposed modification of the Creditor’s claim along with a deadline for objecting to the Debtor’s proposed treatment. If the Creditor does not object and the Debtor’s Plan is confirmed by the Court, then the Creditor’s claim may be modified in the way proposed by the Debtor. In this way, a secured creditor holding a large claim may find its lien removed or significantly reduced and oftentimes the affected creditor—after the fact—recalls receiving the Motion or Plan but doing nothing since it was not aware of what the Debtor was trying to do and the ultimate impact on the claim. As a creditor, make sure to contact your bankruptcy attorney you if receive a Motion or a Debtor’s Plan which seeks to “value” your secured claim or otherwise modify your secured claim in any way.
As with the filing of a bankruptcy case under any Chapter, an automatic stay of nearly all collection efforts arises when a Chapter 13 case is filed so Court permission is necessary for a Creditor to pursue its lien against the Debtor’s property outside of the bankruptcy process. What this means is that even if a Chapter 13 Debtor is not paying a secured claim after the bankruptcy case is filed it will still be necessary for a Creditor to seek relief from the automatic stay and obtain a Court order permit it to recover its collateral. A Creditor may be required to file a motion to modify a Debtor’s use of secured collateral after a bankruptcy case is filed in order to obtain what is known as an Order of Adequate Protection which sets for the terms by which a Debtor is permitted to use secured collateral after a case is filed, including the requirement that the Debtor make payments and provide proof of insurance on such collateral. Contact our bankruptcy attorneys to schedule a consultation to review your case whether you hold a secured or unsecured claim in a Chapter 13 bankruptcy case.