Introduction .....................................................................................2

1. Common Bankruptcy Questions ....................................................5

2. What a Chapter 13 Bankruptcy and this BookCan and Cannot Do ..42

3. Steps in a Bankruptcy Action .......................................................62

4. Preparation of the Petition .........................................................100

5. The Chapter 13 Plan .................................................................193

6. The Effects of Bankruptcy on The Debtor's Home. .....................212

7. The Effect of Bankruptcy on The Debtor's Pension .....................226

8. Exemptions Available to the Debtor ............................................236

9. Lien Avoidance ........................................................................336

10. The Meeting of Creditors and Confirmation Hearing ..................362

11. Amendment to the Petition ......................................................385

12. Discharge ...............................................................................401

13. Life after Bankruptcy ..............................................................417

Index ...........................................................................................430

Bankruptcy Forms

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This book is a companion to another book of this legal series, CHAPTER 7 BANKRUPTCY. A Chapter 7 proceeding is known as a "straight liquidation"; whereas the Chapter 13 proceeding is known as an "individual reorganization." One or the other of these books should be used by the average individual contemplating the filing of a bankruptcy petition.

There are two other types of bankruptcy: Chapter 12 bankruptcy for farmers and Chapter 11 reorganization for large debtors (persons with over $250,000 in unsecured debts and over $750,000 in secured debts). Most people who file for bankruptcy protection do so under either Chapter 7 or Chapter 13 of the Bankruptcy Code.

A Chapter 13 petition is one of four types of bankruptcy and is often called an "individual's reorganization." Unlike a Chapter 7 proceeding, this type of bankruptcy filing does not liquidate all of a debtor's non-exempt property and immediately discharge a debtor of all dischargeable debts.

A Chapter 13 proceeding requires the debtor to make payments pursuant to a plan to the creditors. At the end of the plan's period of life (usually three years,) all unsecured debts are discharged. if all payments have be met. Debts owed to secured creditors usually are not discharged under the plan unless they are judgment liens on exempt property or non-purchase money liens on consumer goods. Full satisfaction of plan requirements relieves the debtor from any obligation to pay any discharged debts.

As with the Chapter 7 book, this one is free-standing and deals with its own area of the law although many of its areas overlap with a Chapter 7 bankruptcy . This volume helps the user understand the area of Chapter 13 reorganization.

This book deals entirely with Chapter 13 bankruptcy. It assists the average person, who may also be engaged in business with unsecured debts of less than $250,000 and secured debts of less than $750,000, in starting the bankruptcy reorganization process. This books contains the appropriate forms for Chapter 13 bankruptcy filing along with detailed instructions and examples for their completion. The law on bankruptcy is covered as it now relates to exemptions and dischargeable debts. Issues that may require a consultation with a bankruptcy attorney are stated in such a manner that the user can verify if the law has subsequently changed. In the vast number of cases, this book should be suffice with little additional source material and verification that the exemptions have not changed.

This volume explains Chapter 13 bankruptcy procedure and includes sample motions for special relief, such as lien avoidance or reopening the estate. After reading this book a few times and following its guidelines for verifying the current exemptions under state law, the reader should have nol difficulty in applying this book to the debtor's bankruptcy.

This book was written to be user friendly. In addition, the bankruptcy court as a stated objective, has the goal of helping a debtor start over. As such, there no honest mistakes a debtor can make that cannot be corrected before final discharge in the case and most such mistakes can be rectified after final discharge.

If this book is used for the purposes outlined and if the book's suggestions, comments and recommendations are considered, the reader should find the bankruptcy proceeding less intimidating and more understandable.

Bankruptcy was once considered a disgrace and a sign of utter failure. A generation ago people committed suicide rather than live with the stigma of a bankruptcy. This stigma regarding bankruptcy no longer exists and in fact is now viewed as ridiculous. Bankruptcy filings have increased astronomically: nearly a million bankruptcies are filed per year.

The bankruptcy law was enacted to give debtors hope that they could start over. The United States Congress, when it enacted the bankruptcy code, was well aware how other countries dealt with their insolvent debtors. Both Great Britain and France had debtors' prisons and penal colonies where they jailed people for no other reason than their inability to pay their debts. In one of the great advances for personal dignity, the United States created the bankruptcy code to permit debtors to start over again.

Most bankruptcies are a very sad affair. Case in point: A client was an elderly widower who had retired from the Federal Aviation Administration. His wife of 30 years had died after a long painful struggle with cancer. His wife's medical bills had erased their entire life savings. The client even sold their house to pay for his wife's treatment. After his wife's death, the client still owed over $100,000 in debts. Bankruptcy was the only alternative.

This chapter does not deal with the entire bankruptcy code. This entire book deals only with one type of bankruptcy, a "Chapter 13 Bankruptcy."

A Chapter 13 petition is a special type of bankruptcy filing and is often called a "reorganization." This type of bankruptcy filing does not liquidate all of a debtor's non-exempt property and immediately discharge a debtor of all dischargeable debts. Instead a Chapter 13 proceeding requires the debtor to make payments, pursuant to a plan, for five years or less to the creditors. At the end of the plan, if all payments are met, all unsecured debts are discharged.

A Chapter 13 filing generally does not discharge debts owed to secured creditors unless they are judgment liens on exempt property or nonpurchase money liens on consumer goods. The liens of the secured creditors can be set aside. After a Chapter 13 bankruptcy becomes final, the debtor is released from the obligation of paying any discharged debts.

This chapter will help demystify the bankruptcy process. The question and answer format presents most of the general information regarding a Chapter 13 bankruptcy. This chapter covers the common questions asked by those considering bankruptcy. The average reader should have a better understanding of the bankruptcy process and his rights under the law after reading this chapter.

Chapter 7 bankruptcy is also called "straight bankruptcy" or "liquidation." It is the simplest and easiest form of bankruptcyproceeding. Bankruptcy per se is a federal statutory proceeding whereby qualified individuals may surrender their nonexempt property for division among their creditors. To the extent that their nonexempt property does not pay their debts completely, the debts are discharged: Forgiven.

The usual Chapter 7 bankruptcy takes between 100 and 180 days. The filing fees for a Chapter 7 bankruptcy are around $160. Usually, the creditor has to appear only once in court: At the meeting of creditors.

Once a discharge is given by the bankruptcy court, the debtor's dischargeable debts are forgiven. The debtor will still be obligated to pay any debts that the bankruptcy court determines should not be discharged for equitable reasons or are not dischargeable under federal law.

Chapter 13 is another type of bankruptcy proceeding. Unlike Chapter 7 bankruptcy, Chapter 13 is a reorganization of the debts, not a liquidation of the debtor's property. In a Chapter 13 bankruptcy, the debtor creates a plan to pay most or all of the debts during a three to five year period. To the extent that dischargeable debts are not to be paid under the plan, the unpaid portion of the debts are forgiven.

There is no time limitation for filing a Chapter 13 petition. In fact, a Chapter 13 petition can be filed immediately after the conclusion of a Chapter 7 proceeding if the debtor so desires.

A Chapter 13 plan is not final and can be modified by the court if the debtor shows good cause, such as a reduction in earnings. The debtor may convert a Chapter 13 petition to a Chapter 7 liquidation at any time provided the debtor has not filed a previous Chapter 7 petition within the previous six years. In addition, the debtor may dismiss the Chapter 13 at any time prior to completion of the plan and be treated as though the bankruptcy had never been filed.

Once a Chapter 13 bankruptcy petition is filed, the bankruptcy court appoints a person called a "trustee" to handle the normal administration and management affairs of the debtor's plan. The trustee calls and oversees the creditors' meeting where the creditors of the debtor examine the debtor in an attempt to discover the location of assets.

After court approval of the debtor's plan, it is the trustee's responsibility to establish the payments to be made to the creditors pursuant to the court approved Chapter 13 plan. These payments are then transmitted to the creditors in accordance with the payment schedule set up in the approved plan. The trustee also has the power to bring or defend lawsuits on behalf of the bankruptcy estate.

After the plan is completely fulfilled according to its terms, the debtor is discharged from liability to pay all dischargeable debts. If the plan cannot be fully completed, the debtor can seek a partial discharge for certain debts as discussed in Chapter 13.

There are two reasons for filing a Chapter 13 petition. The first reason is that the debtor wishes to buy time to reorganize debts. Such a person intends to dismiss the petition within a period of time and pay the debts. The purpose behind filing the petition is simply to gain a breathing period and to avoid imminent foreclosures or lawsuits during the period.

The second reason for filing a Chapter 13 is the more common reason. The debtor possesses a significant amount of nonexempt property which would be lost in a Chapter 7 liquidation. To keep the property, the debtor elects to file a Chapter 13 petition and establish a plan that will pay the unsecured creditors the amount of money they would have received had the debtor filed a straight liquidation. A Chapter 13 filing allows the debtor to keep the estate intact while paying less per month than was being paid prior to the filing. Once the plan is completed, the debtor will be discharged from the unpaid portions of the unsecured debts. If the debtor is unable to complete the plan, it might still be possible for the debtor to get a partial discharge of unsecured debts from the bankruptcy court.

Under the bankruptcy code, unsecured creditors must receive, at a minimum, an amount equal to that which they would have received had the debtor filed a Chapter 7 liquidation instead of a Chapter 13. To determine how much the unsecured creditors receive,the debtor determines what property is exempt from unsecured creditors and what property is not exempt from unsecured creditors. The value of unsecured property is totaled, and that is the minimum value that must be split among the unsecured creditors.

Each unsecured creditor is given a minimum payment amount based upon that creditors percentage share of all creditors. Example: An unsecured creditor is owed 10% of all unsecured debts then ten percent of the value of the estate on the date of filing must be paid to the creditor.

Since the payment schedule for the plan extends over several years (no more than five years), it is permitted to pay a creditor more than the minimum amount as long as each unsecured creditor receives at least as much as the creditor would have received if a Chapter 7 petition had been filed at the beginning.

It is also permitted in a Chapter 13 proceeding to treat unsecured creditors differently. A debtor may establish classes of unsecured creditors and treat them differently. As long as the classes are established in good faith and with a legitimate reason, the debtor may pay the creditors of one class a higher percentage of their debt than creditors of another class.

In a Chapter 13 proceeding, the debtor is required to submit for court approval a written plan for the payment of creditors over a period of several years. The plan must last for three years and with court approval may be extended to five years. In special circumstances, a plan can be approved for less than three years butgenerally only if the debtor proves to the curt that all unsecured creditors will be paid in full under the plan.

The plan must provide payments to the unsecured creditors that will at a minimum equal the amount they would have received had the debtor filed a Chapter 7 liquidation instead of a Chapter 13 petition. The debtor is not required to pay all of the unsecured debts. Under the bankruptcy law, the debtor is required to pay only that percentage of debts that would have been paid had a Chapter 7 petition been filed. The plan may also provide for the payment of secured debts as well as unsecured debts. The Bankruptcy Code requires fully secured debts to be paid in full if they are included in the plan.

In a Chapter 13 proceeding, the debtor must make all of the payments ordered under the plan to the trustee. Upon receipt of the debtor's payments, the trustee pays the creditors the amounts designated in the plan. Generally, the trustee receives 10% of all payments received as his fee.

Payments under the plan must begin within 30 days after the filing of the plan with the court. The plan must be filed within 30 days of the filing of the Chapter 13 petition. The payments must be regularly made, usually on a monthly basis. Some bankruptcy courts will order an attachment of the debtor's wages to assure payments are made under the plan.

Bankruptcy Code Section 109 states the criteria fordetermining when a debtor can file a Chapter 13 petition. A Chapter 13 petition can be filed if the debtor:

1. Resides in the United States or has a domicile in the United States,

2. Was not a debtor of another bankruptcy case which was dismissed within the previous 180 days because of

(a) A willful failure to open the orders of the court or to prosecute the case, or

(b) A dismissal upon the debtor's request following a filing of a request to lift the automatic stay,

3. Has a source of regular income (without this the debtor has no assured ability to make any payments ordered under any approved plan),

4. Has no more than $250,000 in noncontingent, liquidated unsecured debts on the date of filing,

5. Has no more than $750,000 in noncontingent, liquidated secured debts on the date of filing, and

6. Is not a stockbroker or commodity broker. A debtor can receive a Chapter 13 discharge even though he has previously received a Chapter 7 or Chapter 13 discharge in another case. Debts which were not discharged in a previous Chapter 7 petition may be discharged in asubsequent Chapter 13 petition unless the court ruled otherwise in the earlier case .

A Chapter 13 payment plan must be approved by the bankruptcy court in order to discharge the debtor's unpaid portions of the debts. The procedure for obtaining court approval is straight forward. The debtor files a Chapter 13 petition. Notice of the petition is given to the creditors, which places an automatic stay on any collection actions by the creditors. The debtor thenprepares the proposed plan, which is filed with the court and served on the trustee and all of the creditors.

A hearing date is then set for the confirmation of the plan. Any creditor having objections to the plan may file objections, which will be heard at the hearing. As long as the unsecured creditors are paid the minimum amount they would have received had a Chapter 7 petition been filed and the debt is properly dischargeable, the objections will be overruled and the plan approved.

Secured creditors are treated differently from unsecured creditors in a Chapter 13 proceeding. Secured creditors may be treated in one of four ways. First, each secured creditor is given the option of accepting a proposed payment plan. This usually means that an approving secured creditor will be paid less than he is actually owed.

Second, each secured creditor may reject the proposed payment plan and stand on his security instrument. In this instance, the creditor must be completely paid within the term of the plan. The court will not approve any plan which will not pay an objecting secured creditor within the term of the plan. Interest must be paid on all secured claims handled in the plan.

Third, the debtor may surrender the collateral to the secured creditor holding a security interest on it. In such a situation, the secured creditor becomes an unsecured creditor to the extent of any deficiency resulting from a proper resale of the property.

The fourth way for a debtor in a Chapter 13 proceeding to deal with a secured creditor is to omit the creditor from the plan and continue to make the payments as before the filing.

When dealing with secured creditors it is important to remember that a secured creditor lien only extends to the fair market value of the security. As such, if a secured claim is handled in the plan and the creditor receives the fair market value of the collateral, the lien is discharged and the secured creditor becomes an unsecured creditor for any remaining unpaid balance.

Alimony and child support obligations are not dischargeable in bankruptcy. The bankruptcy will not suspend or stop the requirement to make current court ordered payments.

The Bankruptcy Act of 1994 amended the automatic stay under section 362 to provide that collection of spousal or child support payments from property which is not property of the estate is not subject to the automatic stay. The 1994 Act also prohibited the automatic stay from blocking commencement or continuation of proceedings to enforce alimony and child support during the bankruptcy case. In a Chapter 13 case, property acquired during the life of the Chapter 13 plan is considered property of the estate. Under the Bankruptcy Act of 1994, child and spousal support claims now have priority over and are to be paid before general unsecured claims and also before tax claims. In addition, the Bankruptcy Act of 1994 prohibits both the trustee and the debtor from recoveringany property transferred to a spouse or to a child in connection with a divorce or separation made within one year of the filing of the bankruptcy petition. Before this amendment, the trustee and the debtor were each permitted to avoid such payments made within a year of the bankruptcy filing as a creditor preference or a payment not supported by reasonable equivalent consideration. Section 522 of the Bankruptcy Code was amended under the 1994 Bankruptcy Act to prohibit a debtor from being able to avoid a judgment lien on otherwise exempt property for child or support payments.

Even if the debts are collected during the bankruptcy, the obligation survives the bankruptcy, and the debtor must still pay the support obligation in full.

There are several types of debts that cannot be discharged under the bankruptcy law. Most important of the nondischargeable debts are:

1. Recent taxes (within three years),

2. Back child or spousal support,

3. Court-order restitution,

4. Recent student loans, and

5. Court judgments for damages caused in drunk driving.

The main exceptions to the general dischargeability of debts are discussed in detail below.

A bankruptcy judge may refuse to grant a discharge for a debt that is otherwise a dischargeable debt when he determines that:

1. It is a credit debt obtained by filing a false credit application.

2. The debtor committed fraud or misrepresentation to obtain the property or services from which the debt derives.

3. The debt derives from an intentional injury caused to another.

4. Property was obtained by theft, robbery or embezzlement.

5. The debtor obtained property without having any intention of paying for it.

The rule of thumb for deciding whether a Chapter 13 filing to be beneficial is whether the payments under the proposed plan would be significantly less than those being paid.

In a bankruptcy, debts are divided into both secured and unsecured debts. An unsecured debt is a promise or obligation to pay to another a certain amount of money which is unsecured by any collateral. The failure to pay such debt will not entitle the creditor to an immediate right to repossess real or personal property to satisfy the obligation. Most debts are unsecured. Examples of unsecured debts are credit cards, utility bills, medical bills, legal bills, rent.

In a bankruptcy, after all the debts having priority are paid, the unsecured debts are totaled. If the estate is large enough, unsecured debts are paid in full. If there are not enough assets in the estate to pay the unsecured debts, they are paid in accordance to their percentage to the amount of money available. To the extent that there are not enough assets to pay all of the unsecured debts, the portion not paid is forgiven and discharged. Example: Theunsecured debts are $200,000, but there are only enough assets to pay $40,000 of the unsecured debts. Each unsecured creditor will be paid only 20› on the dollar.

Under both state and federal law, a person is entitled to exclude from the bankruptcy certain property. The individual is given an option of electing to take the federal exemptions or the particular state exemptions.

Both state and federal law have some of the same exemptions although they vary in amounts. Both systems provide exemptions for:

1. Motor vehicles up to a certain value.

2. Reasonable clothing.

3. Reasonable household furnishings and appliances.

4. Personal effects to a certain value.

5. Some public pensions.

6. A certain amount of equity in a home.

7. Tools of a trade or profession up to a certain amount.

8. Public benefits such as social security, welfare, or disability payments.

There are additional exemptions under both state and federal law, but these are the common exemptions. Of the above exemptions, the homeowner's exemption for equity is often the most important. The proceeds from the sale of any exempt property are not attachable by the trustee or creditors to pay debts. An exception exists if the otherwise exempt property is secured as collateral for payment of a debt. In such an event, the bankruptcy does not affect the rights of the creditor holding the security interest from repossessing theproperty after the bankruptcy discharge if the debt secured by the property remains unpaid.

Non-exempt property is property that is not exempt from attachment to pay the debtor's obligations under federal or state law. Examples of non-exempt property in a bankruptcy are:

1. Cash, stocks, bonds and investments over a certain amount.

2. A second motor vehicle.

3. Second home.

4. Family heirlooms over a certain value.

5. Collections, such as paintings, coins, stamps.

6. Expensive equipment for use in a trade or business.

A debtor is required to disclose in the bankruptcy petition any property which the debtor has a right to receive even though it has not yet been received. Examples of such property are:

1. Unpaid wages.

2. Debts owed to the debtor.

3. A tax refund due to the debtor.

4. Property that the debtor inherited but has not yet been distributed to the debtor.

5. Benefits from a trust established for the debtor.

6. Benefits from an insurance policy on another person's life.

The purpose behind requiring such disclosure is obvious. Itprevents a debtor from concealing assets by simply delaying payments of money or the delivery of property until after the petition for bankruptcy relief is filed. Any property in which the debtor has an interest, whether contingent or absolute, is required to be listed in the petition. Failure to do so will jeopardize the debtor's discharge.

18. IS PROPERTY ACQUIRED AFTER BANKRUPTCY INCLUDED IN THE ESTATE?

The general rule is that property acquired after the filing of a bankruptcy petition is not included in the bankruptcy estate. There are a few exceptions to this rule for certain property acquired within 180 days after filing bankruptcy.

The after-acquired property subject to inclusion in the bankruptcy estate is:

1. Property inherited within 180 days of the filing regardless of whether it is actually distributed.

2. Property from a property settlement in a divorce or legal separation.

3. Death benefits or life insurance proceeds on another.

The importance of such after-acquired property is that it may affect the Chapter 13 plan and therefore require an amendment. As stated above, unsecured creditors must receive at least as much, under the plan, as they would have received had the debtor filed for a Chapter 7 discharge. Therefore, under the plan if the creditors were receiving the bare minimum based upon the assets that the debtor then possessed, the subsequent acquisition of any of the above property would require amending the plan to take into account the additional property. If, however, the debtor had beenpaying more than the minimum amount and even with the inclusion of the new property the creditors are still receiving more than they would had a Chapter 7 petition been filed, then no amendment of the plan is necessary. In any event, the debtor would be required to file an amended schedule to inform the trustee and the court of the additional property, even if the plan would not need to be amended.

19. SHOULD A MARRIED COUPLE FILE BANKRUPTCY TOGETHER?

There is no requirement that married couples file a joint bankruptcy petition. Each spouse may file bankruptcy separately. In addition, one spouse alone may file bankruptcy, and the other spouse may elect not to do so. Generally, if a married couple intends to file bankruptcy, it is more advantageous for them to file a joint petition rather than two separate petitions. The decision of the spouses as to how to file may be governed by the status in which they reside. The effect of state law on the classification of property as either community or separate property may make the filing of both spouses in bankruptcy necessary to protect their rights.

In a community property state, all community property is included in a debtor's estate regardless of whether the debtor's spouse files a bankruptcy. Bankruptcy law states that all community property, not just the debtor's half interest, is included in the estate if the debtor's creditors can attach it under state law absent the bankruptcy.

Example: A husband and wife own a piece of real property ascommunity property. Under state law, both spouses have equal management and control over the property as joint owners. As a result, when the husband files bankruptcy, the trustee will take all of the property and sell it to satisfy the husband' creditors, even though the wife never filed bankruptcy. For this reason, in a community property state, when one spouse files, the other spouse usually files to protect the spouse's interest in the community property.

The separate property of the non filing spouse cannot be attached to pay the debts of the spouse filing bankruptcy. Separate property, in a community property state, is property acquired by a spouse prior to a marriage or after marriage by gift, devise or bequest: Not through work.

Any state that is not a community property state is a separate property state. The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In a community property state the community property interest of the married, non filing spouse can be attached in the other spouse's bankruptcy. This is one of the drawbacks in having community property.

In a separate property state, the estate of a married debtor in bankruptcy consists of the debtor's separate property and only one-half of the jointly owned property with the debtor's non filing spouse. The separate property of the non filing spouse isnot included in the filing spouse's bankruptcy estate.

Exempt property is property that the debtor can keep regardless of the bankruptcy. Each state has its own set of laws that list what property is exempt in bankruptcy.

There is a federal set of exemptions that the debtor may use in the District of Columbia, Connecticut, Hawaii, Massachusetts, Michigan, Minnesota, New Jersey, New Mexico, Pennsylvania, Rhode Island, Texas, Washington, Wisconsin and Vermont. The debtor cannot use the federal exemptions in addition to the state exemptions and cannot mix or match them. The election is for one set of exemptions or the other..

In the states not listed above, the federal exemptions are not available, and the debtors can use only their state's exemptions.

It is important for a debtor to understand all exemptions that are available. It is only from the nonexempt property that the payments required under the plan are to be made. Most states provide a general exemption that a debtor can apply toward any type of property or split among several properties. The following states have a $400 general exemption: California, Georgia, Maine, Ohio, Vermont, West Virginia. Kentucky has a $1,000 exemption, Maryland a $2,500, Missouri a $1,250 and Pennsylvania a $300 general exemption. Other states also have general exemptions butrestrict their application to personal property not real property. A federal general exemption also exists for $400.

As stated earlier, payments to unsecured creditors are made only from nonexempt property. An important exemption in some states is for tenancy-by-the-entirety property. Tenancy-by-the-entirety is a special form of ownership of property between married persons: The surviving spouse receives all of the property under a right of survivorship.

Sixteen states treat tenancy-by-the-entirety property in a different fashion from either separate property or joint property. These states will exempt all tenancy-by-the-entirety property from inclusion in a debtor's bankruptcy estate if only one spouse files bankruptcy and if the debts discharged were those owed solely by the filing spouse. If a married debtor tries to discharge joint debts in the bankruptcy, the tenancy-by-the-entirety exemption is lost.

Under the bankruptcy law, payments made within 90 days of filing a bankruptcy petition are considered preferential payments to creditors, and the trustee can set aside the payments and require that the creditor return the payments to the bankruptcy estate.

Payments on debts owed to a debtor's relative, friend or company in which the debtor is an officer may be recovered by thetrustee if the payments were made within one year of filing for bankruptcy protection.

Payments of debts that are secured by exempt property can be a good planning tool. Paying the debts on exempt property with money that would otherwise be lost in the bankruptcy will assure that the debtor will receive the exempt property.

Filing a Chapter 13 bankruptcy petition is a big deal. Before filing the bankruptcy petition, the debtor must understand what a Chapter 13 discharge will do and what it will not do.

A Chapter 13 petition is a reorganization of debts for individuals. The debtor creates a plan which must be approved by the court; some of the debts are discharged (in whole or part), and the remaining debts are paid over a period of time (usually three to five years). A Chapter 13 proceeding is commonly called a "reorganization," which is a correct name. A bankruptcy petition filed under Chapter 13 of the Bankruptcy Code permits the debtor to establish a payment schedule over a period of time (between three and five years) for the payment of unsecured debts. Those unsecured debts that are completely paid during the term of the plan will have their balances discharged. By comparison, a bankruptcy proceeding filed under Chapter 7 is a liquidation of the debtor's estate with the proceeds being distributed among the debtor's creditors.

What has to be borne in mind when considering the filing of a Chapter 13 petition, is that a Chapter 13 petition can only be filed by a debtor with less than $250,000 in unsecured debts andless than $750,000 in secured debts. These restrictions severely limit the number of people who can seek Chapter 13 protection. Debtors, such as those engaged in business whose debts are greater than the stated limits must file a full blown Chapter 11 petition if they want to reorganize. That is generally prohibitive because of the cost.

In a Chapter 13 proceeding, the debtor's estate is not sold or liquidated. The debtor keeps all the assets of the estate. The Chapter 13 payment plan requires the debtor to pay the unsecured creditors a minimum amount equal to that which would have been received had the debtor filed a Chapter 7 bankruptcy petition. The dischargeable debts owed the debtor's unsecured creditors are thereafter discharged and forgiven to the extent they remain unpaid in the plan: The debtor will not have to pay them.

Not all debts are dischargeable in a bankruptcy proceeding, regardless of whether a Chapter 7 or a Chapter 13 petition is filed. A debtor should know what type of debts cannot be discharged. It is possible that a bankruptcy filing might not help a debtor because the majority of his debts may not be dischargeable. There are certain debts that Congress has made nondischargeable in bankruptcy as a matter of public policy. There are other debts that are nondischargeable only if the creditor objects. It is very important for a person considering filing for bankruptcy protection to know what debts are dischargeable and what debts are nondischargeable. Filing a Chapter 13 petition may be oflittle assistance where most of a debtor's debts are nondischargeable. This chapter identifies and explains which debts are nondischargeable under the bankruptcy code.

This book is designed to offer a practical, easy-to-understand and easy-to-use "How To" book for the average Chapter 13 proceeding. This book was written to be used by an individual for personal bankruptcy or by an individual engaged in a small service or retail business with few assets or inventory. A Chapter 13 proceeding permits the debtor to keep the bankruptcy estate as long as the debtor makes payments to the unsecured creditors which are at least equal to the amount that the unsecured creditors would have received had the debtor instead filed a Chapter 7 liquidation proceeding.

A Chapter 13 proceeding is usually used when the debtor has nonexempt property which would be lost in a Chapter 7 proceeding. If the debtor does not have large amounts of nonexempt property, a Chapter 7 proceeding usually would be better than a Chapter 13 proceeding. To determine which bankruptcy proceeding would be best, the debtor needs to ascertain the extent of exempt and nonexempt property in the estate. This book explains in detail the exemptions available to a person filing for bankruptcy protection. A person using this book will calculate the exemption available to that person and check the bankruptcy code to see if any new exemptions have been added. The amount of exempt property in anestate will generally determine the type of bankruptcy petition to file.

This book can easily be used by married couples, and in fact a joint filing by married couples provides the following advantages in the vast majority of cases:

1. The spouses are permitted to double (claim twice the state's permitted exemption amount) the exemption for specified exemptions In many states.

2. The cost is less than separate filings.

3. It is usually quicker to get a decision on a joint petition rather than two separate ones.

Yet there can be situations where filing jointly may not be best. Before filing a joint petition, a couple should consult an attorney specializing in bankruptcy and the bankruptcy code to determine any recent changes in the exemption law when the following exists:

1. The couple owns property with the title being taken in the name of tenancy-by-the-entirety. The title will be reflected in the deed of title document in the form "Jane Doe and John Doe, husband and wife as tenants by the entirety." In a few states property held as tenants in common will not be included in the estate of a spouse filing separately if the other spouse is not liable for the debt. This can be extremely important if the couple has such property. A consultation on this issue may cost $250, but it can save tens of thousands of dollars in exempt property. Even with the consultation fee, it will still be cheaper for a person to prepare his own bankruptcy petition (See Chapter 6 for a fuller discussion).

2. The couple has ERISA qualified pensions. In recent years the United States Supreme Court has made several rulings that seriously affect the exemption for ERISA pensions. These exemptions are discussed in the Chapter on

Pensions. In some circumstances it may be beneficial for a couple to move to another state and use the federal pension exemption and the federal homestead exemption there.

This book does not cover nor should it be used for the following matters:

1. Chapter 11 Reorganization. A business reorganization of debts is governed by Chapter 11 of the Bankruptcy Code. Such a bankruptcy uses an entirely different set of procedures. Through this type of bankruptcy, the business is allowed to continue operating while restructuring its debt.

2. Chapter 12 Farm Reorganization. Chapter 12 of the Bankruptcy Code is special reorganization that exists only for use by farmers. As with all reorganizations some debts are discharged and the payment schedules of others are altered. A farmer considering bankruptcy should consult a bankruptcy attorney to determine whether a Chapter 7 or Chapter 12 petition is best.

3. A Debtor Engaged in Big Business. Debtors who are engaged in a small business may file a Chapter 13 petition. The business debts must not push the debtor over the Chapter 13 limits of $250,000 in unsecured debts and $750,000 for secured debts. In most instances, a debtor engaged in business will have debts over that amount and usually will be doing business as a corporation or limited liability company. The business would not be eligible for a Chapter 13 filing, but the debtor who owns the business as either a shareholder of the corporation or member of the limited liability company will still be able to file a personal Chapter 13 petition if he qualifies. A debtor engaged in business as a sole proprietorship should consult a bankruptcy attorney if the debts approach or exceed the Chapter 13 limits.

The Bankruptcy Code has 10 separate categories of debts which are non-dischargeable in a Chapter 7 or a Chapter 13 proceeding. Of the 10 categories, seven represent debts that cannot be discharged unless those debts fall into narrowly defined exceptions. The remaining three categories of debts are dischargeable UNLESS THE CREDITOR files timely objections to their discharge. Those nondischargeable debts are discussed below:

Under section 523(a)(1), a debt is not discharged if it is:

"(1) For a tax or customs duty,

(A) Of the kind and for the periods specified in section 507(a)(2) of this title, whether or not a claim for such tax was filed or allowed,

(B) With respect to which a return, if required;

(i) was not filed, or

(ii) was filed after the date on which such return was last due under applicable law or under any extension, and after two years before the date of the filing of the petition, or

(C) With respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax."

a. INCOME TAXES

Generally, income taxes can be discharged provided the following conditions are met:

1. The taxes are over three years old,

2. The assessment for the taxes was made over 8 months prior to filing of the bankruptcy petition,

3. The tax return was timely filed, (for taxes relating to a late return, the tax debt is not excepted unless the required return was due, after any extensions, within two years of the filing), and

4. The debtor did not file a fraudulent return or wilfully attempt to avoid paying the taxes.

Under the bankruptcy code, tax assessments made against a debtor within 8 months of filing a bankruptcy petition are non-dischargeable even if the taxes are over three years old. The debtor must wait more than eight months after any tax assessment to be able to discharge those back taxes even if the other requirements for a valid discharge are met.

When all of the above conditions are met, the back taxes may be discharged. Penalties assessed for late filing or nonpayment are dischargeable if the taxes to which they relate are dischargeable. If the taxes are not dischargeable, neither are the penalties.

Property taxes that are less than one year old are nondischargeable. Yet from a practical sense it makes no difference. Property taxes are almost always assessed against the property and not the owner. The taxing agency usually imposes a statutory tax lien against the property to secure payment of the lien (see Chapter 9, Lien Avoidance). Therefore, in truth of fact property taxes are not dischargeable because they must be paid if the debtor wishes to keep the property to which they are attached.

A creditor's debt will not be discharged pursuant to section 523(a)(3) unless the creditor was either duly listed as a creditor with the court or had actual notice of the bankruptcy filing. It is the clerk of the bankruptcy court who sends the notice of the bankruptcy filing to the creditors. A creditor who is not properly listed will not receive notice of the bankruptcy action and be unable to protect his interest.

The purpose of this exception to a discharge is obvious. There is an affirmative duty on the part of the debtor to notify the creditors of the bankruptcy. The bankruptcy system will not function as intended if debtors are permitted to exclude creditors and not give them an opportunity to participate in the proceeding. In addition, the discharge of any unnoticed creditor would probably be unconstitutional as a violation of due process.

If the creditor never had knowledge of the debtor's bankruptcy, the creditor's debt is not discharged. The debtor then remains liable for repayment of the debt even though the other debts of the debtor have been discharged.

In the case of an omitted creditor, the debtor may petition the court to list the creditor. Reopening the case is rare, but the procedure is covered in the Chapter 13. Absent reopening the case, the debtor remains liable for repayment of the debts of any creditor who was omitted on the petition and had no knowledge of the action.

Under section 523(a)(5), court-ordered payments for the support of a child or former spouse are non-dischargeable. Yet there are variations on this theme of which a debtor must be aware. A debtor should consult an attorney where back child support is at issue because it might be a criminal act, not to have paid it, quite apart from the bankruptcy law.

Once a court orders a parent to make child support payments, the obligation to make those payments then becomes nondischargeable (In re Harrell 33 B.R. 989; 1983. The obligation to make child support payments ordered by a court is not discharged even if it is assigned to a state or governmental agency. If a county or state agency provides benefits to a family because of the debtor's failure to make court- ordered support payments, the state or other governmental agency is assigned the right to receive reimbursement. That right to receive reimbursement for the support payments made by the state for the support of the debtor's child cannot be discharged (as it once was) by the debtor's subsequent bankruptcy.

The general rule is that claims of third parties for property or services provided for a child's support are dischargeable by a parent (In re Lo Grasso, 23 F.Supp. 340). There is, however, case law that holds that where a parent deserts or neglects the children, the debts for the property or services which have been provided by third parties are not dischargeable (In re Meyers 12 F.2d 938).

If there is be a court order requiring the support payments to be made the debt for child support to be non-dischargeable. All states have laws that impose a duty to support a child on the parent. In addition, the parent can be sued for the value of the child support provided by third parties. Yet these debts are dischargeable unless reduced to a judgment prior to the debtor-parent filing for bankruptcy protection. Example: A mother deserts her children and the father raises them. The father is entitled to reimbursement from the mother for her share of the child support. If the mother files for bankruptcy relief before the father gets a judgment for reimbursement, the obligation to reimburse the father for the back child support is discharged. If the father obtains a court order requiring the mother to reimburse him for the back support, the debt for back support is not dischargeable.

Spousal support, also known as alimony, requires either a court order or an agreement obligating the debtor to make support payments to the spouse to make the payment obligation not be dischargeable. The debtor may agree to make spousal support payments through a marital agreement or a property settlement agreement, and such support payments are nondischargeable. Without either a court judgment ordering a debtor to make spousal support payments or an agreement requiring them to be made, the debtor's obligation to make support payments can be terminated in a bankruptcy.

Where parties are not married, unless the relationship qualifies as a common law marriage, the debtor may be discharged from any obligation to make support payments to the other party through a bankruptcy proceeding.

The Bankruptcy Act of 1994 amended the automatic stay under Section 362 to provide that collection of spousal or child support payments from property that is not property of the estate is not subject to the automatic stay. The 1994 Act also prohibited the automatic stay from blocking commencement or continuation of proceedings to enforce alimony and child support during the bankruptcy case. In a Chapter 13 case, property acquired during the life of the Chapter 13 plan is considered property of the estate. Under the Bankruptcy Act of 1994, child and spousal support claims now have priority over and are to be paid before general unsecured claims and even before tax claims. In addition, the Bankruptcy Act of 1994 prohibits both the trustee and the debtor from the recovery of any property transferred to spouse or child in connection with a divorce or separation made within one year of the filing of the bankruptcy petition. Before this amendment, the trustee and the debtor were each permitted to avoid such payments made within a year of the bankruptcy filing as a creditor preference or a payment not supported by reasonable equivalent consideration.

Section 522 of the Bankruptcy Code was amended by the 1994 Bankruptcy Act to prohibit a debtor from being able to avoid a judgment lien on otherwise exempt property for child or supportpayments.

Section 523(a)(7) exempts from discharge those debts incurred as fines or penalties deriving from the debtor's violation of the law. This exception from discharge is firmly based on the belief that approving such a discharge would be an implicit approval of criminal or civil misbehavior. Therefore, all governmental sanctions, whether by a court or agency, for a violation of any rule, statute or law are not dischargeable.

The only penalties not completely excepted from discharge under this chapter are tax penalties if the tax itself can be discharged under section 523(a)(1) as discussed above. Some additional tax penalties can be discharged even if the tax is not dischargeable if the transaction giving rise to the tax occurred three or more years prior to the filing of the bankruptcy petition.

Under section 523(a)(8) student loans made or guaranteed by a governmental agency (which are just about all of them) are not dischargeable unless the payments on the loan became due more than seven years before the debtor filed for bankruptcy relief or unless failure to discharge the student loan debt would impose an undue hardship on the debtor.

If the bankruptcy petition is filed more than seven years after the student loan matured (became payable), there is no requirement for the debtor to prove undue hardship to have thestudent loan debt discharged. The seven year period is intended to keep students from discharging the loans prior to starting their careers.

Most courts will allow the debtor to discharge the entire student loan if it became due more than seven years earlier. Some courts will only discharge those delinquent payments over seven years old (see the California case In re Steiner 55 B.R. 1; 1983). If a debtor is considering discharging student loans over seven years old, the debtor should consult a bankruptcy attorney for determining how they are handled in that state. If the bankruptcy court of that state will only discharge the payments over seven years old, it might be advantageous for the debtor to move to another state whose bankruptcy court would discharge the entire amount.

In order to get a discharge for student loans less than seven years old, the debtor must convince the court that the debtor will suffer undue hardship from being required to make the payments on the student loan (In re Rice 4 C.B.C.2d 134; 1981). The second Circuit Court of Appeals (Brunner vs. New York State Higher Educational Service Corp. 831 F.2d 385; 1987) has stated that the debtor has to show all the following to prove undue hardship:

1. The debtor cannot maintain, based on current income and expenses, a minimal standard of living for self and dependents if forced to repay the loans,

2. Additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment of the student loan, and

3. The debtor has made a good faith effort to repay the student loans.

When the court is granting a discharge for undue hardship, the court may grant only a partial discharge of the student loans. It is rare that a court will grant a complete discharge based on undue hardship.

A special type of student loan is the Health Education Assistance Loan for use by those obtaining a medical education. This type of student loan was held not to be dischargeable unless the debtor could show a greater burden than just an undue hardship in being forced to repay the loan (In re Hines 15 C.B.C.2d 959 and Columbus College vs. Shore 707 F2d. 1337; 1983). For all intents and purposes, such loans should be considered and treated by a debtor as nondischargeable except in extreme cases.

Debts incurred as a result of an episode of intoxicated driving are not dischargeable under section 523(a)(9). If a debtor is driving while intoxicated and causes an accident, the debtor can no longer avoid the liability of paying for the damages caused by the escapade by filing a bankruptcy petition. Prior to the enactment of this section, such debts arising from damages caused by intoxicated driving were dischargeable unless the debtor had been driving in such a reckless manner as to make the conduct almost willful and thus nondischargeable under section 523(a)(6) discussed below.

Now, the damages caused by a person's intoxicated driving will not be discharged if the following requirements are met:

1. The debt arose from a court decree or judgment against the debtor for damages caused by the debtor's intoxicated driving,

2. The court found the debtor to be legally intoxicated, and

3. The court rendering the judgment was a court in the state where the damage caused by the debtor's intoxicated driving occurred.

These requirements must be met in order for an intoxicated driving debt not to be discharged. In other words, a court for the state where the accident occurred must find the debtor legally drunk or under the influence of drugs and order the debtor to pay compensatory damages to the injured parties (fines payable to a state as punishment are already nondischargeable under paragraph 4 above).

Intoxication means that at the time of the incident, the debtor was operating the vehicle while under the influence of either alcohol or drugs to such an extent as to be unable to operate it safely. In addition, many states have enacted laws that specifically make it a crime for a person to operate a vehicle with a blood alcohol level above a certain level. In California, for instance, the legal level above which no person can operate a vehicle is a blood alcohol level of .08%. A person involved in an accident while having a blood alcohol level over the legal level is guilty of driving while intoxicated, and the resulting damages are not dischargeable.

Generally, if a debtor files for bankruptcy relief prior to a state court issuing its judgment, the debtor's debts are discharged. Yet some courts will not discharge drunk driving debts if a judgment is obtained after the filing of the petition (In re Thomas 51 B.R. 187; 1985). The Ninth Circuit Court of Appeals (In re Hudson 859 F.2d 1418) denied a debtor's discharge for a drunk driving debt stating:

"Since enactment of Section 523(a)(9) bankruptcy courts have consistently held and litigants relying on those opinions have assumed that its language includes claims against drunk driver bankrupts reduced to judgment after commencement of the case. We are not inclined to disturb the consistent body of law which Congress apparently acquiesces."

A person with drunk driving debts that have not been reduced to a judgment should consult a bankruptcy attorney. It might be possible to avoid payment of the intoxicated debts by filing for bankruptcy relief prior to a state court judgment being rendered. This might mean having to move to a state whose federal bankruptcy disagrees with and is not governed by the above Ninth Circuit Court's case.

Under section 523(a)(10), if a debtor had an earlier bankruptcy petition dismissed in its entirety because of substantial misconduct or fraud by the debtor, none of the debts that could have been listed in that earlier dismissed case can be discharged in a subsequent bankruptcy case. In the same vein, if the debtor waived a discharge in an earlier case, the debtor cannot seek a discharge in a subsequent case as to that debt.

The exception to discharge under this section does not applyto technical dismissal of the earlier case. Example: Dismissals based upon a failure to pay a filing fee or a dismissal based upon the fact that a previous discharge had been obtained after six years.

B. DEBTS THAT WILL BE DISCHARGED UNLESS A CREDITOR OBJECTS

There are other Section 523 types of debts that may be nondischargeable under certain circumstances. These debts are:

1. Section 523(a)(2)(A) and (B). Debts deriving from fraudulent acts by the debtor.

2. Section 523(a)(2)(C). Debts for luxury goods in excess of $1,000 and cash advances incurred within 60 days of the bankruptcy filing by the debtor.

3. Section 523(a)(6). Debts deriving from the debtor's willful or malicious acts which injure another person or cause damage to another's property.

4. Section 523(a)(4). Debts deriving from a debtor's breach of a fiduciary relationship, embezzlement or larceny.

Under 523(c)(1), the debts will be discharged unless the creditor files an objection with the court seeking to have the above debts declared nondischargeable.

Condominium common charges which accrue while the debtor is living on the property or subletting are not dischargeable.

Bankruptcy Rule 4007(c) governs the procedure by which a creditor may object to the discharge of any of the above debts. Rule 4007(c) requires the creditor who holds the debt to file a complaint seeking to have the debt declared nondischargeable within 60 days of the first meeting of creditors in order to have any of the above debts declared nondischargeable. If the creditor does notfile this complaint within the allotted time, the debts will be discharged.

What constitutes a fraudulent debt is liberally construed. The operative word is fraud. By definition fraud is the intentional making of a misrepresentation (false statement) about a material fact on which another party reasonably relies to his detriment. If a debtor tricks another person of cash or property by false statements, that is a fraud.

Fraud also includes obtaining loans by making false statements, such as obtaining a loan based on false statements of credit worthiness. Fraud also exists whether the debtor obtained property by false pretenses, such as agreeing to hold property for another but instead taking the property for one's own use.

The most common type of fraud involves credit cards. A court will not permit a discharge of credit card bills if they were incurred with the deliberate intent to have them discharged in bankruptcy. It is a common misconception that credit card debts are always dischargeable. Consequently, debtors will max their cards (charge to the maximum of the line of credit) prior to filing for bankruptcy relief. The court will not discharge the charges that are out of the ordinary. Example: Mary normally charges $500 per month and has a $5,000 line of credit. Mary charges $5,000 on the card one week before files her bankruptcy petition. The creditor can object to the discharge of the credit card debts because it isclear from the facts that Mary deliberately made the charges with the intent to have the debt discharged.

Fraud requires an intent to deceive at the time the contract or representation is made. If a debtor enters a contract with the intent of performing it, there is no fraud and debt for failure to perform the contract is dischargeable. On the other hand, if the debtor enters a contract with no intent of ever performing it, the debtor is not discharged from paying those debts deriving from the breach of the contract or misrepresentation.

A debt deriving from a willful or malicious act that injures another person or property is not dischargeable if the creditor objects. A crime that injures a person or property is a willful and malicious act under bankruptcy code, and the debts deriving are not dischargeable. Example: A debtor attacks an innocent person and puts the victim in the hospital. The debtor's liability to pay the medical bills is not discharged by a bankruptcy. Also as discussed earlier, debts incurred from damages caused by the debtor's intoxicated driving have been held by some courts not to be dischargeable regardless of whether or not they can be discharged under section 523(a)(9).

Debts that do not derive from criminal acts may nonetheless be nondischargeable if the act was malicious. To be malicious, the act must be one that a reasonable person would believe to be highly likely to cause injury to another or property. Example: Thereckless operation of a power saw that cuts another person. There was no intent to cause the injury, but a reasonable person could see that playing with a power saw could cause that injury. The damages caused by the reckless operation of the saw are not dischargeable.

Larceny and embezzlement are just different forms of theft. If the debtor steals property from a fiduciary position of trust, it is embezzlement. If the debtor steals the property from people at large, it is larceny. In either case, the debts deriving from the thefts, either the obligation to pay for the property or to return it, are not discharged by the bankruptcy if the creditor objects. This seems rather straight forward. Otherwise, a person stealing a million dollars would not have to pay it back.

A fiduciary duty is the obligation imposed by law on a person in a position of trust to act reasonably. A fiduciary is liable for any damages caused by the breach of this duty to act reasonably. If the fiduciary acts irresponsibly and injures the person required to be protected, the debts deriving from the breach of duty are not discharged. Example: A person is the guardian of another and invests that person's assets in risky investments (in which a reasonable person would not invest). The guardian is liable to replace any losses. The debts for breach of a fiduciary duty will not be discharged provided the creditor (the person injured or the representative) objects.

A Chapter 13 bankruptcy proceeding is methodical, procedural and entirely predictable. The steps begin with finding the correct court and end with receiving the final discharge. Throughout, the case is a logical progression from one step to another. Once the debtor understands the steps that will occur in the ordinary Chapter 13 case, the debtor will appreciate the orderly nature of the bankruptcy procedure and feel be more at ease.

Every state has at least one bankruptcy court. Some states have divide into judicial districts and have a bankruptcy court for each judicial district. The debtor is required to file the bankruptcy petition with the bankruptcy court covering the debtor's home state. If there is more than one bankruptcy, he files with the court in whose judicial district he has lived the most in the last six months (in other words more than 180 days before filing the petition).

With more than one bankruptcy court in a state, the bankruptcy court closest to the debtor's home is probably the one where the debtor should file. A list of the bankruptcy courts is at the end of this chapter. To be sure that a court is the proper one, the debtor can call the court and ask the clerk if the debtor's home is covered by that bankruptcy court.

Once the proper court has been determined, the debtor should call the clerk and ask the following questions:

1. If the debtor sends a check and a large self-addressed envelope, will they send the following to him:

a. The local rules of court,

b. A fee schedule for all court filings, and

c. Copies of all local forms.

Many Courts have adopted their own local forms to be filed in addition to the official forms contained in this book. Those local forms will have be filed as well. Usually the local forms are merely information forms that are easy to complete.

2. Ask the clerk whether the court requires blue backing on the pleading and what must be typed on it. This information is also included in the local rules. Some courts, in order to make the petition more recognizable in a file cabinet, require that the petition be stapled to a stiff blue sheet of paper (obtainable from any office supply or art store) usually an inch longer than the petition. On the inch that overlaps the court usually requires the name of the case be typed. Most courts don't require a backing.

3. Ask the clerk whether the court uses the standard creditor matrix (the form with the many blocks). If not, the debtor will have to request it in the letter to the clerk.

The forms contained in this book are based upon the Official Bankruptcy Forms as prescribed by the Judicial Conference of theUnited States. These forms will remain valid for upcoming years even if there are changes made to them. Under the Bankruptcy Rules, as long as a form contains the basic information required on the official form, it can be used even though it has been superseded by another form. To be certain that the forms will be accepted, the clerk can be asked if the court will accept a specific form. If the answer is no, the reader will have to purchase the new official form from the court or a stationary or office supply store for about $20.

Calculate the amount of money all this will require and send a check in that amount to the clerk in a self-addressed envelope. Given the work load of most courts, the reader should not be surprised if the line is busy or if the clerk will not answer questions (they do not have to do it). The alternative is to drive to the courthouse and get this information in person.

Each court can adopt its own rules of procedure within the confines of the Bankruptcy Code passed by the U.S. Congress and the Bankruptcy Rules adopted by the U.S. Supreme Court. Anyone filing a bankruptcy petition must comply with all rules and procedures adopted by the court in which the petition is filed. The debtor must get a copy of the local rules. Usually, the local rules are no more than a statement of the general bankruptcy rules. The advice in this book is directed for compliance with the general rules and should usually comply with most local rules.

There are occasionally situations where the debtor does not have the time to complete the full petition before some type of foreclosure act of a creditor occurs. Bankruptcy Rule 1007 (c) provides a possible method to file just the petition along with a list of creditors to get an immediate automatic stay.

The debtor will have 15 days to file the missing schedules and statements. If the omitted schedules are not filed within the 15 days, the court will dismiss the petition unless the debtor obtains an extension from the Court. If the petition is dismissed, the debtor can refile but will have lost the $160 filing fee already paid.

The emergency filing requires that the debtor file at least the following:

1. The voluntary Chapter 13 petition, and

2. The list of all the creditors, as known by the debtor (especially listed must be the creditor whose collection is forcing the emergency filing).

The list of creditors must be put in the form approved by the local rules of court. Not all courts use the creditor matrix (the sheet with blocks for the typed names of creditors). Whatever form for the list of creditors the court requires is the form that the debtor must used.

Once all the appropriate forms are obtained, the debtor determines the size, manner and type of the debts in the estate.There is a worksheet for the debtor to list the assets and liabilities of the debtor's estate following this chapter to help in organizing the estate.

After completing the worksheet, the debtor can use it to determine what debts are nondischargeable and what debts are dischargeable. The debtor should review Chapters 2, 6, 7, 8, and 9 for the state of the law.

Once the debts have been divided into the various categories, the debtor can decide if there are any liens on exempt property which may be avoided (removed) in accordance with the Bankruptcy Code (see Chapter 9). Once the above decisions are made, the debtor is ready to complete the schedules, the statement of intention and summary of debts and property.

The remaining acts to be done prior to filing are completion of the creditor matrix, statement of the debtor engaged or not engaged in business and cover sheets for the petition. When everything is complete, the debtor is ready to file the petition (see Chapter 4).

The filing fees of $160 dollars ($130 filing fee and $30 administrative fee) are payable in full at the filing. It may seem a bit strange that someone bankrupt must find $160 dollars to seek relief under the bankruptcy code. Bankruptcy Rule 1006(b)(1) permits a debtor to pay the $160 fee by installments over four months if the court approved Application to Pay Filing Fee in Installments is filed with the petition. No installment plan willbe given to a debtor who has previously paid an attorney for consultation or assistance in preparing the bankruptcy petition. An Application to Pay Filing Fee in Installments is included in this book.

Soon after the petition for bankruptcy is filed with the court, the clerk of the court will schedule a meeting of creditors. The clerk will send notice of the hearing to all of the creditors named in the petition. Even though the court will notify the creditors of the bankruptcy, the debtor should send a letter immediately to the creditors informing them of the bankruptcy petition, the court where it was filed and the case number.

The purpose behind the debtor giving this notice is simply to avoid possible hassles. Under the bankruptcy law, once the debtor files the bankruptcy petition, there is an automatic stay on debt collection and foreclosure proceedings against the debtor. Yet unless a creditor knows of the bankruptcy, collection proceedings may go forward. Even though they will be subsequently set aside, there's no reason to go through the hassle and bother of doing so when a quick letter from the debtor early in the case would prevent that from happening.

Shortly after the petition is filed, the court appoints the trustee to handle the case. The trustee will preside over the creditor meeting. The judge will not be there. The trustee and thenthe creditors will question the debtor about the location of property in the estate and the debtors intent to set aside any liens on secured property.

Once a Chapter 13 bankruptcy petition is filed, the bankruptcy court appoints a person called a trustee to handle the normal administration and management affairs of the debtor's plan. The trustee calls and oversees the creditors' meeting where the creditors examine the debtor discover the location of assets.

There is a hearing to confirm the debtor's Chapter 13 plan following the meeting of creditors. This hearing can be set by the court to immediately follow the meeting of creditors or may be set for another date. If the debtor files his proposed plan when he files his petition, the confirmation hearing will probably be held at the same time as the meeting of creditors.

Once the court has approved a debtor's plan, the trustee is responsible for receiving the debtor's payments as ordered by the plan. The trustee then makes the payments to the debtor's creditors pursuant to the court approved Chapter 13 plan. Generally, the trustee receives 10% of all payments as the Trustee's fee.

Payments under the plan must begin within 30 days after the filing of the plan with the court. The plan must be filed within 30 days of the filing of the Chapter 13 petition. The payments must be regularly made, usually on a monthly basis. Some bankruptcy courts will order an attachment of the debtor's wages to assure paymentsare made under the plan.

These payments are then transmitted to the creditors in accordance with the payment schedule in the approved plan. The trustee also has the power to bring or defend lawsuits on behalf of the bankruptcy estate.

Once the plan has been completely fulfilled, the debtor is discharged of all dischargeable debts. If the plan cannot be fully completed, the debtor can seek a partial discharge for certain debts as discussed in Chapter 12.

In a Chapter 13 proceeding, the debtor is required to submit to the court for approval a written plan for the payment of creditors. The plan must last for three years and may be extended to five years with court approval. The plan must provide payments to the unsecured creditors that will at a minimum equal the amount that they would have received had the debtor filed a Chapter 7 liquidation instead of a Chapter 13 petition. The debtor is not required to pay all of the unsecured debts.

To determine how much the unsecured creditors will receive, the debtor determines what property is exempt and what property is not exempt from unsecured creditors. The value of nonexempt unsecured property is totalled, and that is the minimum value that must be split among the unsecured creditors. Each unsecured creditor is given a minimum payment amount based upon that creditor's debt percentage of all creditors debts. Example: Anunsecured creditor is owed 10% of all unsecured debts. Then 10% of the value of the estate on the date of filing must be paid to the creditor. Since the payment schedule for the plan extends over several years (no more than five years), it is permitted to pay a creditor more than the minimum amount as long as each unsecured creditor receives at least as much as he would have received if a Chapter 7 petition had been filed at the beginning. To determine the minimum amount to pay the unsecured creditors, the debtor must first determine what property is exempt in the estate. The nonexempt property will then be used to calculate the amount to be paid to the unsecured creditors.

It is also permitted in a Chapter 13 proceeding to treat unsecured creditors differently. The Bankruptcy Code permits a debtor to establish classes of unsecured creditors and treat them differently with regard to the percentage of their debts which are paid. As long as the classes are established in good faith and with a legitimate reason, the debtor may pay the creditors of one class a higher percentage of their debt than creditors of another class.

The plan may also provide for the payment of secured debts as well as unsecured debts. Under the Bankruptcy Code, fully secured debts must be paid in full if they are included in the plan. If secured creditors are not fully paid in the plan, they can object, and no discharge will be granted as to their debts. A debtor is not required to deal with secured creditors in the plan and may continue to deal with them outside the plan. The main reason forlisting a secured creditor is to stave off a foreclosure. As long as the plan provides for the curing of a default and the resumption of normal payments in a responsible time, the court will prevent the secured creditor from proceeding with a foreclosure action. If the debtor cannot cure the default and resume payments within the plan, the court will release the debt from the automatic stay and permit the creditor to foreclose on the property. The debtor is required to pay interest on the debt of any creditor covered under the plan.

Secured creditors are treated in one of four ways. In the first instance, each secured creditor is given the option of accepting a proposed payment plan. This usually means that an agreeing secured creditor will be paid less than the creditor is actually owed under the security agreement.

Second, each secured creditor may reject the proposed payment plan and stand on his security instrument. The creditor must be completely paid within the term of the plan. The court will not approve any plan which will not pay an objecting secured creditor within the term of the plan. Interest must be paid on all secured claims handled in the plan.

In the third case, the debtor may surrender the collateral to the secured creditor holding a security interest on it. In such a situation, the secured creditor would become an unsecured creditor to the extent of any deficiency resulting from a proper resale of the property.

The last way for a debtor in a Chapter 13 proceeding to deal with a secured creditor is to omit the creditor from the plan and continue to make the payments as required before the filing.

When dealing with secured creditors it is important to remember that a secured creditor's lien only extends to the fair market value of the security. If a secured claim is listed in the plan, the lien is discharged once the creditor receives the fair market value of the collateral, and the secured creditor becomes an unsecured creditor for any remaining unpaid balance.

A Chapter 13 payment plan must be approved by the bankruptcy court in order to discharge the debtor of unpaid portions of the debts. The procedure for obtaining court approval is straight forward. The debtor files the Chapter 13 petition and notice of the petition is given to the creditors, thereby placing an automatic stay on any collection actions by the creditors. The debtor then prepares and files the proposed plan with the court, and the court serves it upon the trustee and all the creditors.

A hearing date is then set for the confirmation of the plan. Any creditor having objections to the plan may file objections, and they will be heard at the hearing. As long as the unsecured creditors are paid the minimum amount they would have received if a Chapter 7 petition been filed and the debt is properly dischargeable, objections will be overruled and the plan approved.

A Chapter 13 plan is not final and can be modified by the court if the debtor shows good cause, such as a reduction inearnings. The debtor may convert a Chapter 13 petition to a Chapter 7 liquidation at any time provided the debtor has not filed a Chapter 7 petition within the previous six years. In addition, the debtor may dismiss the Chapter 13 at any time prior to completion of the plan and thereafter be treated as though the bankruptcy petition had never been filed.

The Bankruptcy Code gives the debtor the right to set aside judicial or judgment liens against exempt property. The procedure for setting aside a judicial lien calls for the debtor to file a motion with the court and give notice of the motion to the creditor possessing the lien.

A judicial lien is a lien placed against exempt property by a monetary judgment resulting from a lawsuit against the debtor. A judicial lien is quite different from a statutory lien created by operation of law. A statutory lien cannot be avoided by a debtor although it might under some circumstances be avoided by the trustee, usually not benefitting the debtor.

The procedure for avoiding a judicial lien is discussed in Chapter 9.

Once a debtor files for bankruptcy relief, there is an automatic stay on all proceedings against the debtor's estate. All lawsuits (including collection and repossession proceedings against the debtor) are automatically stayed for the duration of thebankruptcy case. The automatic stay remains in effect against all of the debtor's creditors; although it can be lifted upon request by individual creditors under certain circumstances.

To get the automatic stay lifted the creditor must file a compliant to lift the automatic stay with the court and serve it on both the trustee and the debtor. The debtor is not required to file a response to the complaint unless the local rules require it. The creditor is required to convince the court that the automatic stay should be lifted as to that particular creditor. The debtor, whether a response is filed or not, must explain to the court why the stay should not be lifted.

After hearing both sides, the court will decide whether to lift the stay and permit a creditor to foreclose against secured property in the estate or maintain a lawsuit for damages against the debtor.

If the plan has been fully performed and no objections to discharge have been filed, most courts will not hold a discharge hearing because there is nothing to be accomplished by the hearing. Instead, the debtor is mailed an order stating that the final discharge is granted. The case is then over for almost all intents and purposes.

A complete Chapter 13 discharge is granted under section 1328 (a) and is broader than a Chapter 7 discharge. A discharge under section 1328(a) discharges the debtor from all but the followingdebts:

1. Any debt not covered in the plan.

2. Debts for alimony or spousal support.

3. Student loans unless grounds for discharge are met.

4. Debts resulting from injuries caused while driving intoxicated.

5. Restitution for criminal offenses.

6. Debts in which the last payment is due after the date of the final payment of the plan, and

7. Postpetition debts that were not allowed under section 1305, also allowed postpetition consumer debts that required prior trustee approval that was practicable but not obtained, and

8. Priority claims, including tax claims, refund claims,wage claims, salaries, commissions and employee benefits that are dischargeable. Still, section 1322(a)(2) requires that priority claims be paid in full under the plan unless the creditor agrees otherwise: Priority claims usually must be paid in full under the plan.

If the debtor is unable to complete the plan, the debtor has three options. The debtor can dismiss the case and be treated by the creditors as having never filed the petition. The debtor will owe the creditors the amount that would have been owed had the Chapter 13 petition never been filed after taking into account any payments that were made through the plan.

The second alternative is for the debtor to convert the plan into a Chapter 7 filing. The debtor's estate will be liquidated, and the creditors will be paid in accordance with the bankruptcy law pertaining to Chapter 7 cases.

The third alternative is for the debtor to seek a partial discharge of the case under section 1328(b). A partial discharge relieves the debtor from all debts except:

1. Secured debts (debts secured by collateral or liens),

2. Debts paid outside of the plan and not a part of the plan,

3. Instalment debts whose last payment is due after the completion of the plan,

4. Debts incurred while the plan was in effect,

5. Debts not dischargeable under chapter 7.

In a partial discharge, the debtor is released from the obligation to pay the discharged debts.

To obtain a section 1328(b) discharge, the debtor must file a motion requesting a partial discharge. Upon filing the motion, at least 30 days notice must be given to the applicable creditors so they can file their objections to the partial discharge. A hearing is then held on the granting of the discharge. If no complaint is filed against the discharge, the debtor usually does not have to appear. If a complaint is filed, a hearing is held on the matter. To receive a section 1328(b) discharge, the debtor must have paid each unsecured creditor at least as much as the creditor would havereceived had the debtor filed a Chapter 7 petition instead of the Chapter 13 petition.

The bankruptcy court has full discretion to reopen a case when good cause is shown. Any interested party, creditor, debtor or trustee may ask the court to reopen the case for cause (see Section 350[a]). There is no definition of cause. It is left to the court to decide when the circumstances of the case are such that the court feels that its sense of justice requires the case to be reopened.

There is no express time limitation for making a motion to reopen an estate for cause. The motion must state those facts giving rise for the reopening of the case. The court will hear the arguments, both pro and con, for reopening the case. After the hearing on the motion, the court will render its order. If the motion is granted, the order cannot be attacked in a collateral action.

The reopening does not automatically reinstate the trustee. A court will not reinstate the trustee unless it finds the reappointment to be necessary to protect the interests of both the creditors and the debtor or the trustee is needed to administer the estate.

Generally, it is difficult for a debtor to convince a court to reopen a case, the debtor must do everything possible to assure that all creditors and property are duly listed.

UNITED STATES BANKRUPTCY COURTS

ALABAMA

P. O. Box 1805, 122 U.S. Courthouse, Anniston, AL 36201,

205-237-5631

500 S. 22nd St., Birmingham, AL 35233, 205-731-1615

P. O. Box 1289, 222 Federal Courthouse, Decatur, AL 35601,

205-353-2817

P. O. Box 228265, Mobile, AL 36652, 205-694-2390

P. O. Box 1248, Suite 127, Montgomery, AL 36192, 205-832-7250

P. O. Box 3226, 351 Federal Building, 1118 24th Avenue, Tuscaloosa, AL, 205-752-5966

ALASKA

P. O. Box 47, Federal Building, 701 "C" St., Anchorage, AK 99513, 907-271-5232

ARIZONA

U.S. Courthouse, 230 North First Avenue, Phoenix, AZ 85205, 602-261-6965

2nd Floor, Acapulco Building, 120 W. Broadway, Tucson, AZ 85701, 602-629-6304

ARKANSAS

P. O. Drawer 2381, 600 W. Capitol, Little Rock, AR72203,

501-378-6357

CALIFORNIA

235 Pine St., San Francisco, CA 94104, 415-556-2250

99 South E Street, Santa Rosa, CA 95403, 707-5258-8539

1300 Clay St., #300, Oakland, CA 94604, 510-273-7212

280 South 1st St., #3035, San Jose, CA 95113, 408-291-7286

2656 U.S. Courthouse, 1130 "O" St., Fresno, CA 93721, 209-487-5217

312 N. Spring St., Los Angeles, CA 90012, 213-844-3118

222 E. Carillo St., Rm. 104, Santa Barbara, CA 93101

699 N. Arrowhead, #105, San Bernardino, CA 92401, 714-383-5717

P. O. Box 12600, Santa Ana, CA 92712, 714-836-2993

940 Front St., #5N26, San Diego, CA 92189, 619-557-5620

COLORADO

A Chapter 13 proceeding begins with the filing of a petition seeking relief under Chapter 13 of the Bankruptcy Code. A Chapter 13 petition is a formal document which consists of many schedules, statements and forms, all of which must be filed. The Bankruptcy Code requires all of its mandated official forms, even though some of the forms may not be applicable for a particular case. When a form contains a question which is inapplicable to a debtor, the debtor must nonetheless answer even if it means writing "N/A," "not applicable" or "none" where appropriate.

Sometimes a situation arises where the debtor needs immediate relief from the bankruptcy court. This situation usually arises where a debtor is facing an immediate or imminent foreclosure of property. An immediate filing is necessary to initiate the automatic stay provisions and stop the foreclosure or sale.

An emergency filing is accomplished through the use of Rule 1007(c). The petition and list of creditors are filed without the accompanying schedules. The schedules must be filed within 15 days or the debtor's bankruptcy petition will be dismissed. The debtor could refile again ,but that will mean paying a new filing fee. Usually, an emergency filing is only necessary when a creditor is about to sell debtor's property that, was security for a debt orwas an attachment to pay a court judgment.

Before the forms are prepared the debtor should complete the worksheet contained in this book and carefully review the material contained in this the book. He should pay particular attention to the discussion on exemptions, nondischargeable debts, lien avoidance, pensions and homestead in order to make the following determinations:

1. What schedule of exemptions will be used,

2. What property will be claimed as exempt,

3. What debts will be discharged, and

4. What debts secured by exempt property will be avoided.

These determinations must be made before the case can proceed.

The debtor must prepare an objective and a plan on how to proceed even before the petition can be prepared. Once the debtor has decided what the objective and the plan are, he is able to complete the forms. A bankruptcy proceeding is a statutorily created action; it is therefore procedurally governed by statute and is very technical in nature. If the proper forms are filed, no one objects, debts are not nondischargeable by law, and the debtor completes the plan, the court must grant the final discharge. The point to bear in mind is that the function of the bankruptcy court is to help the debtor, not the creditor. The Bankruptcy Code was enacted to help a debtor, heavily laden with debt, to start with a new life. A debtor should not be fearful and apprehensive over the process.

Any mistakes that a debtor makes during the term of the plan can always be corrected before the court grants the final discharge. The debtor will not be punished for an innocent mistake. The biggest fear that a person has in filing his own petition is that some mistake will be made that will irreparably harm the case. Such a mistake cannot happen. The case is always under the management of the trustee and overseen by the court. Any mistakes that a debtor honestly makes can be corrected by filing amendments to the petition with the court before the final discharge. Mistakes uncovered after the final discharge can also be addressed through a motion to the court to reopen the case.

Debtors who are engaged in business are permitted to file a Chapter 13 petition providing they are otherwise eligible: They have unsecured debts of less than $250,000 and secured debts of less than $750,000.

Self-employed debtors are usually permitted to continue to operate their business as set forth in section 1304. Without court approval a self-employed debtor who continues to operate a business cannot use, sell or lease "cash collateral" or obtain credit other than unsecured credit in the ordinary course of business. "Cash collateral" is cash, or it is property equivalent to cash in which a secured creditor has a security interest. Debtors continuing a business will be required to prepare and file any required business reports that the court, trustee, or government tax entity may require. In addition to filing a Chapter 13 petition, a debtorcontinuing a business must file a complete inventory of the business within 30 days of filing the petition unless the inventory was included in the petition.

Many bankruptcy courts have special local rules regarding debtors continuing a business. Local rules should be consulted before filing the petition if the debtor wishes to continue to operate a business. Unless the court rules otherwise, the trustee is required to make a report following an investigation on the debtor's business and the debtor's management.

The entire petition consists of the following forms:

1. The Voluntary Petition. This form specifically asks that the court grant the debtor a bankruptcy. It is little more than a cover sheet and the signature page for the petition;

2. The Application to Pay The Filing Fee in Installments. This form can only be used where the debtor has not paid an attorney or typing service for advice.

3. The Statement of Financial Affairs. This form simply gives the court the debtor's background so it can understand the financial situation afflicting the debtor.

4. Schedule A is a list of the debtor's real property along with any lien on it.

5. Schedule B is a list of the debtor's personal property along with its current market value.

6. Schedule C is a list of the property claimed as exempt by the debtor.

7. Schedule D is a list of the creditors holding secured claims

8. Schedule E is a list of the creditors holding unsecured priority claims.

9. Schedule F is a list of the creditors holding unsecured nonpriority claims.

10. Schedule G: Executory Contracts and Unexpired Leases. This form is used to report all unexpired leases on either real or personal property.

11. Schedule H: Codebtors. This is a list of all persons who share liability with the debtor on the debts listed in the schedules.

12. Schedule I is a list of the current income of the debtor.

13. Schedule J is a list of the current expenditures of the debtor.

14. Summary of Schedules is just as the name implies, a summary of the foregoing schedules.

15. The List of Creditors. In many bankruptcy courts, the mailing matrix (the sheet of blocks) is used. Some courts use a different form for listing creditors. The debtor should ask the clerk or read the local rules to discover how the list of creditors is handled.

16. Notice to Consumer Debtor. The clerk is required to give notice of the different types of bankruptcy proceedings stated in the Bankruptcy Code. The debtor must sign the form and file it with the court.

17. Any special local forms. Each court has the authority to create any additional forms that it feels helpful in administering a case. The debtor should consult the local rules or speak with a clerk to determine if any special forms are employed by the court.

All of the above forms must be completed and filed with the court before the chapter 13 proceeding can commence. If all of the forms are not filed within a 15 day period, the court will dismiss the action. It is the filing of the Voluntary Petition along with the schedule of creditors that starts the case. An automatic stay immediately comes into effect to protect the estate of the debtor.

IMPORTANT NOTE: UNDER THE BANKRUPTCY CODE ALL PLEADINGS FILED WITH THE COURT MUST HAVE TWO STANDARD HOLES PREPUNCHED IN THE TOP IN ORDER FOR THE CLERK TO ACCEPT THEM FOR FILING. THE HOLES ARE REQUIRED SO THAT THE CLERK CAN PUT THE PLEADINGS IN THE FILE. (THE CLERK USE TO PUNCH THE HOLES). A punch can be purchased inexpensively at all office supply store. Also, most public libraries have such punches and would allow the public to them for the minutes or so it would take to punch the holes in the petition.

Following the filing of the petition, the clerk will schedule the creditors' meeting. At the creditors' meeting, the debtor will be examined to determine his assets and the debtor's intentions. After the creditor's meeting, the debtor will schedule any motionsfor lien avoidance.

The debtor must submit a plan for the payment of the debts to be administered by the court. If the plan is submitted to the court at the same time that the petition is filed, the court can set the hearing to confirm the plan to follow the meeting of creditors. This is a great convenience to the debtor because it relieves the debtor of having to make a second appearance before the court at a later date.

If the plan is not filed with the petition, then the hearing to confirm the plan will be held at a date after the meeting of creditors. Any creditor objecting to the plan has an opportunity to come forward to explain why the creditor feels the plan should not be approved. As a practical matter, the objections of unsecured creditors will not prevent a plan from being approved if:

1. The unsecured creditors receive under the plan at least as much as they would have received had the debtor filed a Chapter 7 petition instead, and

2. The debts seeking to be discharged are not nondischargeable under the Bankruptcy Code.

Even if a debt is nondischargeable, the plan can nonetheless structure payments for that debt during the plan's term. If the debt is not fully paid in the bankruptcy proceeding, the debtor remains liable for payment of the balance after the plan has been completed.

In the same vein as nondischargeable debts are debts withpriority claims. Section 1322(a) requires that a Chapter 13 plan provide for full payment in deferred cash of all priority claims unless the holder of the claim agrees otherwise (agrees to take less than the holder owes or agrees to take payments outside the plan or after the plan has been completed). Priority claims are defined under section 507(a) as being:

1. Administrative expenses such as the trustee's fee and the debtor's attorney fee,

2. Unpaid taxes,

3. Unpaid wages, salaries, commissions earned by the creditor within 90 days of filing the petition or of the date of cessation of the debtor's business (but only to the extent of $4,000 per person),

4. Unsecured claims on contributions to employee benefit plans within stated limits,

5. Unsecured claims of $2,000 or less per person on fishermen and persons engaged in raising grain,

6. Unsecured claims of less than $1,800 each on deposits for purchases, rentals or services which were not delivered.

Priority claims are listed on Schedule E.

Once the plan has been approved, all that remains is for the debtor to make the payments ordered under the plan to the trustee along with costs of the plan. The major cost of the plan is the trustee's fee: Equal to 10% of all the money paid to the trustee. Because the trustee fee is based upon the amount of the money paid to thetrustee, secured debts which are not in default are usually not included in the plan. In such a situation, the debtor makes the payments outside the plan and does not have to pay a 10% trustee fee for having the payments transmitted to the secured creditor. Where the debtor is in default of a debt with a secured creditor, the debt is handled in the plan so that the secured creditors cannot foreclose on the property securing the debt. In that instance, the debtor must pay the trustee fee on the payments going to the secured creditor pursuant to the terms of the plan.

If the plan has been fully performed and no objections to discharge have been filed, most courts will not hold a discharge hearing because there is nothing to be accomplished. The discharge is in this instance is basically automatic. Instead of holding a discharge hearing, the court simply mails an order to the debtor stating that the final discharge has been granted. The case is then over for all intents and purposes.

A complete Chapter 13 discharge is granted under section 1328 (a) and is broader than a Chapter 7 discharge. A discharge under section 1328(a) discharges the debtor from the obligation to pay all but the following debts:

1. Any debt not covered in the plan,

2. Debts for alimony or spousal support,

3. Student loans unless grounds for discharge are met,

4. Debts resulting from injuries caused while driving intoxicated,

5. Restitution for criminal offenses,

6. Debts for which the last payment is due after the date of the final payment of the plan, and

7. Postpetition debts that were not allowed under section 1305, plus allowed postpetition consumer debts, the prior trustee approval for which was practicable but not obtained,

8. Priority claims (including tax claims), refund claims, wage claims, salaries, commissions and employee benefits are dischargeable. Section 1322(a)(2) priority claims must be paid in full under the plan unless the creditor agrees otherwise. Priority claims usually are paid in full under the plan.

In the situation where the debtor is unable to complete the plan, he has three options. First choice, the debtor can dismiss the case and be treated by the creditors as having never filed the petition. The debtor will owe the creditors the amount he would have owed had the Chapter 13 petition never been filed less any payments made through the plan. A form for a "Motion to Dismiss a Case under Section 1307(b)" is included in Chapter 12.

Second alternative, the debtor can convert the plan into a Chapter 7 filing. The debtor's estate will be liquidated and the creditors paid in accordance with the bankruptcy law pertaining to Chapter 7 cases. A form for a "Notice for Conversion of A Case To Chapter 7" is included in Chapter 12.

Third alternative, the debtor can seek a partial discharge of the case under Section 1328(b). A partial discharge discharges the debtor from all debts except:

1. Secured debts (debts secured by collateral or liens),

2. Debts paid outside of the plan and not a part of the plan,

3. Instalment debts with last payment due after completion of the plan,

4. Debts incurred while the plan was in effect, and

5. Debts not dischargeable under Chapter 7.

In a partial discharge, the debtor is released from the obligation to pay the discharged debts. To obtain a Section 1328(b) discharge, the debtor must file a motion requesting a partial discharge. A form for a motion for partial discharge is included in Chapter 12.

Before completing a bankruptcy petition, if living with a person of the opposite sex, the debtor must disclose if a common law marriage exists. If a common law marriage does exist, it must be disclosed in the bankruptcy petition even if the other person does not join the bankruptcy petition.

Several states recognize common law marriages. If the couple live together as man and wife for a period of time continuously in such a state (usually five years), the couple is legally married. A couple married by common law can file a joint petition. The states permitting common law marriages are:

Alabama Colorado Idaho Kansas

Montana Ohio Oklahoma Pennsylvania

Rhode Island S. Carolina Texas District of Columbia

If an unmarried couple live in a common law state and wish to file bankruptcy, they should check the law of the state to determine if they are legally married. If so, they can file jointly and usually save money and possibly increase their exemptions.

The voluntary petition is the easiest form to complete. The following information concerning each debtor filing for bankruptcy relief is typed in the appropriate boxes:

1. Name of the debtor. If married and filing jointly, names of both spouses are placed in the appropriate boxes.

2. Residence and mailing address of each debtor.

3. Social Security number of each debtor.

4. Address where most of the property of the estate is located.

In addition, the debtors must check the following boxes as appropriate:

1. The type of debtor: Individual, married couple filing jointly, corporation or partnership. This book is intended for use by individuals or married couples.

2. The Chapter 7 box should be checked for the type of petition being filed.

3. If the debtor does not have an attorney and will be representing himself, the box stating "debtor not represented by an attorney" should be checked. The debtor should type N/A on the box entitled "name and address oflaw firm or attorney" if no attorney has been employed to represent the debtor.

4. The debtor must check the boxes estimating if there will be money left over for division among the creditors. The debtor must also check the appropriate boxes for the estimated value of the estate and the estimated amount of the debts owed (this information is obtained from the Summary Schedule that will be attached to the petition).

5. The debtor must check the venue stating that he has resided in the judicial district of the court for more than 90 days. This book is not for use by a corporation or a general partner engaged in business, so the second box under the "venue" heading should not be checked.

6. If the debtor has filed a previous bankruptcy petition, he must so state even if it was later dismissed. Otherwise type N/A.

7. If a debtor's spouse or partner has a separate petition pending it must be stated. Otherwise type N/A.

8. Each debtor will sign twice. The debtors will each sign as an individual along with any joint debtor also seeking a discharge in this action (usually a spouse). In addition, a debtor with mostly consumer debts (to whom this book is addressed), is required to sign under the statement that the debtor is aware that relief under Chapters 7, 11, 12, and 13 might be available but is choosing to use Chapter 7. Signing here completes the voluntary petition.

A completed example for a bankruptcy under the laws of California is set forth for reference. This sample is good for any bankruptcy filing because the same forms are used in all bankruptcy courts, and the bankruptcy law covers the entire United States.

This form is required to be completed by all debtors. An individual debtor engaged in business as a sole proprietor (the only type of debtor engaged in business which this particular book addresses) must provide all of the information requested concerning the business as well as the debtor's personal affairs.

Each question must be answered. If the answer is "none" or the question is not applicable, it must be so stated. The questions were written in such a way that the answers will furnish information. Both the court and trustee will use this information to evaluate the debtor's eligibility to receive a discharge of debts. If more space is needed to answer the questions, continuation sheets may be attached.

Questions 1 through 15 must be answered by all debtors. Questions 16 through 21 are only to be answered by those debtors who have been engaged in business. A debtor is considered to be engaged in business if he has been a sole-proprietor or self-employed within the previous two years.

If the debtor has been an officer, director or managing executive of a corporation or a general partner of a business within the previous two years, he must also answer questions 16 through 21. Since this book is not for use by such a debtor, it will not address the problems faced by such a debtor. This type of debtor should consult a bankruptcy attorney.

QUESTION 1

Question 1 asks how much the debtor has earned from work (employed or self-employed) within the previous two years. If more space is needed, the debtor can attach additional pages.

QUESTION 2

Question 2 asks what other income (other than from business) the debtor has received during the previous two years. Such income may be interest, dividends, inheritances, devises, etc. The purposeof this question is to make sure the debtor is not concealing assets.

QUESTION 3

Question 3 requires the debtor to identify all payments made to creditors within 90 days of filing. The purpose for identifying those payments is that the trustee may have the right, to recover such payments from the creditors. These recovered payments may then be distributed among the debtor's unsecured creditors. This probably will not result in additional property being kept by the debtor.

QUESTION 4

Question 4 requires the debtor to list all lawsuits, executions and garnishments in which the debtor has been involved in within the previous year. The trustee may be able to recover any property transferred pursuant to a court order or judgment during the previous year. This recovery would be for the benefit of the unsecured creditors and not result in additional property being kept by the debtor.

QUESTION 5

Question 5 requires all foreclosures, repossessions or voluntary surrenders of property in which the debtor has been involved within the previous year be reported. The trustee may be able to recover such property as an improper preference to creditors. This recovery would be for the benefit of the unsecured creditors and not result in additional property being kept by the debtor.

QUESTION 6

Question 6 requires all assignments made to creditors within 120 days preceding the filing and all property that has been held by a custodian, receiver or court-appointed officer within one year preceding the filing be reported. The trustee may be able to recover such property as an improper preference to creditors. This recovery would be for the benefit of the unsecured creditors andnot result in additional property being kept by the debtor.

QUESTION 7

Question 7 requires the debtor to list all gifts more than the $200 per family member and $100 per charitable organization made prior to the year of filing the bankruptcy petition. The purpose is to ensure that the debtor has not dissipated the estate by making gifts (usually to family members) who may later give it back.

QUESTION 8

Question 8 requires the debtor to list all losses from theft or casualty within one year from the commencement of the case and after the commencement of the case. This question helps to determine if the debtor is squandering the estate's assets or hiding them by claiming that they were stolen.

QUESTION 9

Question 9 relates to payments made on debt counseling including payments made to attorneys within one year of the filing. It might be possible for the trustee to recover such payments as estate assets and use them for the benefit of the unsecured creditors (which these people will become).

QUESTION 10

Question 10 requires that the debtor list any other transfer of property not previously covered (other than those transfers in the ordinary course of business or as security) within one year of the debtor's filing for bankruptcy relief. It might possible for the trustee to recover such property and place it in the estate for the benefit of the unsecured creditors (which these people will become).

QUESTION 11

Question 11 requires the debtor to disclose all bank accounts, brokerage accounts, credit union accounts, pension funds, and all other financial accounts of whatever nature. This simply is to ensure that no assets are being hidden or omitted.

QUESTION 12

Question 12 requires that safe deposit boxes held within one year of the bankruptcy be listed along with contents. The purpose it to make sure that the debtor is not concealing assets.

QUESTION 13

Question 13 requires that the debtor list any setoffs that creditors have applied against debts owed to them. A setoff exists where a creditor reduces a debt by applying property or money owed to the debt against it. For example, assume that George owes the bank $500, and the bank takes it out of his checking account. That is a setoff. Setoffs made within 90 days of the debtor filing for bankruptcy relief may be recovered by the trustee as assets to the estate. The Trustee will apply such recovered property to the debts of the unsecured creditors.

QUESTION 14

Question 14 requires that property be listed that is held by another but owned or controlled by the debtor. The purpose of this is to prevent a debtor from giving property to another to hold or manage under the directions of the debtor (such as a revocable trust) in order to remove it from the bankruptcy estate.

Such property will be recovered by the trustee and placed into the bankruptcy estate to the extent such property is not exempt.

QUESTION 15

Question 15 requires the debtor to list all prior addresses of the debtor within the last two years. This is simply background information in the event the trustee needs to investigate the debtor.

QUESTIONS 16 THROUGH 21

Questions 16 through 21 should be answered by a person using this book if the person has been self-employed or a sole-proprietor within the previous two years. These answers also have to be answered by debtors who have been general partners of a business, or an officer, director, managing executive or owner of more than5% of the securities of a corporation. This book, however, does not address the particulars faced by such sophisticated debtors.

This information will be used by the trustee to acquire more information to determine what assets should go into the debtor's estate.

QUESTION 16

Question 16 is a basic question requiring the debtor to state the name, address and description of any business in which the debtor was involved as a sole-proprietor or self-employed within the two years previous to the bankruptcy filing.

QUESTION 17

Question 17 requires the debtor to list all the bookkeepers and accountants of the business for the six years prior to filing of the petition. In addition, the debtor is required to list anyone who has audited the books of the business within the two year period prior to the filing of the petition. The debtor is also required to list every person and entity to whom a financial statement was given within two years prior to filing for bankruptcy relief.

The debtor will request copies of the audits and financial statements from these people and entities. The trustee will then compare the information contained in the financial statements and audits with the books and records of the business.

QUESTION 18

Question 18 deals with the inventories of the business. The debtor is required to list the dates and values of the last two inventories. The inventory of the business is an asset of the debtor's estate when the debtor is self-employed or a sole-proprietor. The inventory will be taken by the trustee to the extent it is not exempt.

QUESTION 19

Question 19 requires the debtor to list each partner, officer or director of the business (if it is a corporation). For personsusing this book, the answer should be "no" because no one who is a partner or shareholder of a corporation engaged in business should use this book. As seen by the questions asked so far, it should be clear that such businesses will have far more complicated problems than a self-employed person.

QUESTION 20

Question 20 requires the debtor to list each partner, officer or director of the business (if it is a corporation) who withdrew within the year previous to the filing of this petition. For persons using this book, the answer should be no because no one who is a partner or shareholder of a corporation engaged in business should use this book. As seen by the questions asked so far, it should be clear that such businesses will have far more complicated problems than a self-employed person.

QUESTION 21

Question 21 requires the debtor to list every withdrawal or distribution to any partner, officer or director of the business (if it is a corporation) within one year of the filing of the debtor's petition for relief. For persons using this book, the answer should be "no" because no one who is a partner or shareholder of a corporation engaged in business should use this book. As seen by the questions asked so far, it should be clear that such businesses will have far more complicated problems than a self-employed person.

A sample completed Statement of Financial Affairs is set forth for reference purposes.

Schedule A is simple list of the real property in which the debtor has an interest. Leasehold interests of the debtor are not listed on this form; they are listed on Schedule G, Schedule of Executory Contracts and Unexpired Leases. The trustee will request copies of the deeds and other instruments that are necessary for the administration of the estate.

Included on this form is the description of the debtor's interest in the property. Life estates along with easements and covenants concerning land owned by another are to be listed. Real property in which the debtor owns an interest are to be listed along with the percentage of ownership. Another column is for use when a married couple files jointly, thereby ensuring that the owner of the property will be listed. If the property is owned by the husband an "H" is placed in the column. If it is owned by the wife, a "W" is placed; if it is owned jointly, a "J" is used; if owned as community property, a "C" is placed in the column.

The debtor is also required to list the current fair market value of the property in one column and in the last column to list the value of any secured claim (loan, judgment lien or statutory lien) on the property.

A completed Schedule A is set forth as an example. All bankruptcy courts will use this form, and it will be completed in the same general manner as the example.

Schedule B is to be used for reporting all the debtor's ownership in personal property leases and executory contracts which are listed in Schedule G, Schedule of Executory Contracts and Unexpired Leases. The trustee will request copies of deeds and other instruments that are necessary for the administration of the estate.

The first column of this form is the place for the description and location of the debtor's ownership in personal property. Another column is for use of a married couple filing jointly to ensure that the owner of the property is listed. If the property is owned by the husband, an "H" is placed in the column across from the property; if it is owned by the wife, a "W" is placed; if it is owned jointly, a "J" is used ; if owned as community property, a "C" is placed in the column.

The debtor must also list th