Filing Chapter 13 Bankruptcy – A Procedural Overview

Chapter 13 bankruptcy law is at times referred to as reorganization bankruptcy.  It’s uniquely different than Chapter 7 bankruptcy. In a Chapter 7 bankruptcy virtually all of your debts are extinguished. But, you must give up any belongings that aren’t exempt from seizure by your creditors. Under Chapter 13 bankruptcy law, you don’t have to forfeit any worldly property. But, you’re expected to utilize your income to pay off some or all of what you owe your creditors. Your payments to creditors are made over time, usually from three to five years. The time parameter hinges on the amount of your debts and income.

Chapter 13 Bankruptcy Law Eligibility

Chapter 13 bankruptcy isn’t for everyone. Chapter 13 bankruptcy law involves using your income to pay some or all of your debt. So, you’ll have to exhibit to the court that you’re able to fulfill your payment responsibilities. If your income is unpredictable or too low, the court may not let you to file under Chapter 13 bankruptcy law.

If your total debt burden is too high, you’re likewise unqualified to file under Chapter 13 bankruptcy law. Your secured debts can’t be more than $1,010,650. A “secured debt” is one that grants a creditor the power to take away a specific piece of property (like your home or auto) if you don’t pay off the debt. Your unsecured debts can’t be greater than $336,900. An “unsecured debt” doesn’t give your creditor the right to take your belongings.  An example of an “unsecured debt” is a credit card or a medical bill.

The eligibility requirements of a Chapter 13 bankruptcy are covered in detail in Chapter 13 Bankruptcy: Keep Your Property & Repay Your Debts Over Time.

Initiating a Chapter 13 Bankruptcy

Before filing a Chapter 13 bankruptcy, you must go through credit counseling from an agency sanctioned by the United States Trustee’s office. These agencies are permitted to charge a fee for their services.  But, if you can’t afford to pay the fee, they have to supply reduced rate counseling and, in a few situations, free counseling.

The Chapter 13 Repayment Plan

The most serious component of your Chapter 13 bankruptcy paperwork is your repayment plan. It identifies in detail how much money you’ll give to each one of your debts. There’s no authoritative form for the plan.  But, virtually all courts furnish their own forms.  To learn more about Chapter 13 Bankruptcy repayment plans, read Chapter 13 Bankruptcy: Keep Your Property & Repay Your Debts Over Time.

How Much Will You Have to Pay

Your Chapter 13 plan must pay back certain debts fully. These debts are called “priority debts” because they’re seen important enough to jump to the head of the bankruptcy repayment line. Priority debts include child support and alimony, wages you owe to employees, and certain tax obligations.  Additionally, your plan must encompass your regular payments on secured debts.

The plan must demonstrate that any income you have left over after getting to these mandatory payments will go to paying back your unsecured debts.  You don’t have to pay off these unsecured debts fully.  You just have to demonstrate that you’re giving any remaining income towards their repayment.

How Long Will You Make Repayment

The duration of your repayment plan turns on how much you earn and how big your debts are. If your average monthly income during the six months prior to the date you filed for bankruptcy is greater than the median income for your state, you’ll need to volunteer a five-year plan. If your income is less than the normal, you may suggest a three-year plan.

Regardless of how much you make, your plan ends when you repay all of your debts in full, even if you’ve not arrived at the three- or five-year mark.

What Goes On If You Can’t Make Plan Payments

If you sustain a job loss after taking up a payment plan or discover that you can’t sustain the payments on your Chapter 13 bankruptcy plan, the bankruptcy trustee may modify your plan.  It’s even feasible that the court could allow the discharge of your debts on the basis of hardship.  Hardship may include the abrupt loss of a job due to a company closedown or a severe debilitating sickness.  If the bankruptcy court won’t permit you to modify your plan or allow you a hardship discharge, you may be able to change to a Chapter 7 bankruptcy. 

How Does a Chapter 13 Case End

After you finish your repayment plan, each remaining debt that’s eligible for a discharge is canceled out. But, before you’ll be able to acquire a discharge, you must prove to the court that you’re current on your child support obligations and that you’ve finished a budget counseling course with an agency authorized by the United States Trustee. This budget counseling course is in addition to the required credit counseling you experience before filing for bankruptcy