What is Chapter 13 Bankruptcy?
A Chapter 13 Bankruptcy is also called a "wage earner's plan". It allows a debtor to develop a plan that pays back a portion of their debt. The plans are typically five years long but may only be three years if the debtor makes less than the medium wage. A bankruptcy attorney can easily determine if you make less than the medium wage.
A Chapter 13 Bankruptcy can also allow you to include past due payments for a home mortgage or a car loan in the plan. This will stop a foreclosure or repossession and allow you to catch up with your past due payments in 36 or 60 payments over the life of the plan. You may only pay a fraction of your unsecured debt in the plan. The remaining unsecured debts may be discharged upon completion of the plan. Talk to a bankruptcy attorney in your area to determine which of your debts are dischargeable under a Chapter 13 Bankruptcy.
Is Chapter 13 Right For Me?
- I can pay off my debts, but I need help restructuring my payments.
- I want to keep my secured properties and my non-exempt properties.
- I'm behind on my car payment or home payment and I know I can make it up with the right bankruptcy plan.
- Asking the courts to put all my liabilities into 1 new payment can help.
- I understand this new payment plan must be met within 5 years according to the US Bankruptcy Code.
- I have a regular income and I can handle the payments.
- I need to catch up on late student loan payments.
These are just a handful of reasons filing Chapter 13 bankruptcy might be your best option.
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Chapter 13 Eligibility
Can I File Bankruptcy? Any individual, even if self-employed, may be eligible to file a Chapter 13 Bankruptcy.
You must have less than $360,475 in unsecured debt and less than $1,081,400 in secured debt. There are also limits based on prior bankruptcies and a pre-filing credit counseling requirement. Talk to an attorney to get the details about Chapter 13 Bankruptcy eligibility.
- You must have less than $360,475 in unsecured debt. (ex: credit card debt)
- You must have less than $1,081,400 in secured debt. (ex: home or car loans)
- You must maintain a regular income.
- You must receive credit counseling from an approved credit counseling agency prior to filing.
Chapter 13 Requirements
- Submit a schedule of your assets and liabilities to the court.
- Submit a schedule of your expenditures and income to the court.
- Submit a schedule of your financial affairs to the court.
- Submit a certificate of credit counseling.
- You must submit your repayment plan within 14 days of filing your bankruptcy petition
- The court must approve or request modifications of the bankruptcy repayment plan.
- Payments must be made in fixed amounts to the trustee (generally monthly or biweekly) within 30 days after filing Chapter 13 (even prior to court approval).
- You must appear at the Meeting of the Creditors.
Chapter 13 and Keeping Property
- Helps you avoid foreclosure by restructuring past due mortgage payments.
- Initiates an automatic stay to stop creditors from their collection activities.
- Allows you to repay secured debts or surrender the collateral to the creditor.
- Pays unsecured creditors after all other creditors are paid.
- Discharges balances on unsecured debts not paid in the plan at the time of completion.
- You must continue to make payments for secured property after the completion of the plan (ex. your home mortgage).
How a Chapter 13 Bankruptcy Works
Before Filing Chapter 13
- A Chapter 13 Bankruptcy begins with the debtor's attorney filing a voluntary petition, schedule of assets, schedule of liabilities, schedule of income, schedule of expenditures, and other related documents on behalf of the debtor.
- The debtor is also required to provide a copy of their last three years tax filings, some proof of income, and proof of meeting the pre-filing credit counseling requirement.
- The debtor must complete credit counseling 180 days prior to filing Chapter 13 bankruptcy.
After Filing Chapter 13
- Immediately upon filing the voluntary petition the automatic stay takes effect. This is a temporary injunction that stops all collection attempts, repossessions and foreclosures. The automatic stay also stops creditor harassment.
The automatic stay is taken very seriously. Creditor violations of the automatic stay may be acted on by your attorney and may result in damages paid to you.
- Between 20 to 40 days after the filing of the voluntary petition, the trustee will hold the meeting of the creditors. You must attend this meeting and have your social security and photo identification available. The trustee may request additional documents. It is important to cooperate with the trustee and supply any requested documents as soon as possible.
- Within a few months of your meeting with the trustee you will have a Chapter 13 Bankruptcy plan confirmation hearing. Your bankruptcy attorney will tell you if you need to attend this hearing.
- Once the hearing is completed and the plan has been confirmed you continue to make your monthly payments for the life of the plan. The plan may be changed prior to completion based on changing circumstances or hardship.
Understanding the Chapter 13 Repayment Plan
After the chapter 13 plan is approved the debtor must make payments to the trustee. The debtor will keep their property as long as they continue to meet the obligations of the repayment plan. The debtor must not acquire new debt without the authorization of the trustee. The debtor must not take any actions which jeopardize their ability to complete the plan. Payments to the plan must be made through payroll deductions, money orders or cashier's checks. Priority debts are given special status within the repayment plan and must be paid in full including spousal and child support, tax debts, wages, salaries and contributions to employment benefit plans. Failure to make the appropriate payments may result in a dismissal of the Chapter 13 bankruptcy case. Bankruptcy plans can be modified under certain conditions such as job loss or ill health. Qualifying debts are discharged at the completion of the bankruptcy plan. Creditors who had notice of the bankruptcy may not continue to collect discharged debts. Creditors for non-discharged debts (ex. criminal restitution or student loans) may continue to collect debt.