This is a frequent question that clients have, and it’s a natural one to ask. Let’s review some of the factors that will lead to the answer. First, the automatic stay of the Bankruptcy Court will instantly stop any and all collections activity upon the filing of your case. So, if you are facing a lawsuit, a garnishment or a sheriff’s sale, then that event will be automatically stopped. No questions asked. Usually, all I have to do is to fax a copy of the Notice of Bankruptcy Case Filing to the Sheriff or to the creditor’s attorney.
The next step is to prepare your Chapter 13 Plan. This refers to the method by which you will repay some or all of your debts. Basically, there are three types of debts in bankruptcy law, (1) secured debts such as mortgages and car loans, (2) priority debts such are delinquent income tax and child support, and (3) unsecured debts such as credit cards, medical bills and personal loans.
Your Chapter 13 plan must treat all three types of debts. In Western Pennsylvania, our Bankruptcy Court has a rule that says that all secured debts must be paid INSIDE the plan, meaning that your mortgage and car loan payments must be paid through the plan. Those future payments, along with any mortgage and car loan arrears, will be paid through your Chapter 13 plan.
The plan must also repay all priority debt in full over the course of your case. A big advantage of the Chapter 13 process however is that you can repay your tax creditors (and that means the IRS) without paying penalty and interest. Obviously, this is a huge advantage for those choosing to file a Chapter 13 case.
Finally, the plan must deal with your ability to repay your unsecured debt, if any. Some filers are able to propose a plan that seeks to repay Zero per cent of the unsecured debt. Others must repay more it simply depends on the individual’s projected disposable income.
Who, then, are the parties who will object to your case? The main ones are mortgage companies and the IRS. But, their objection will not be that your case should be dismissed. Rather, they are objecting to the dollar amounts proposed in your plan. In other words, your plan correctly lists the mortgage payment and the arrears, then the mortgage company will not object. The same with the IRS.
The Chapter 13 Trustee usually is the party who will determine whether you are paying sufficiently to your unsecured creditors. Although it is possible, it is nevertheless rare that any single credit card company will object to your plan.
So, basically, you will know at the Meeting of Creditors (which takes place about 30-45 days after your case has been filed) whether or not the Trustee or the other parties intend to object to your case. One of the nice things about bankruptcy law is that it is quick!