A Procedural Overview of Chapter 13 Bankruptcy

Chapter 13 bankruptcy law is on occasion referred to as reorganization bankruptcy. It’s very different than Chapter 7 bankruptcy. In a Chapter 7 bankruptcy virtually all of your debts are extinguished. But, you must forfeit any belongings that aren’t exempt from seizure by your creditors. Under Chapter 13 bankruptcy law, you aren’t required to abandon any personal items. But, you’re expected to use your income to pay back some or all of what you owe your creditors. Your payments to creditors are made over time, typically from three to five years. The time frame depends upon the size of your debts and income.

Chapter 13 Bankruptcy Eligibility Prerequisites

Chapter 13 bankruptcy isn’t for everybody. Chapter 13 bankruptcy law calls for using your income to pay back some or all of your debt. So, you’ll have to show to the court that you’re able to fulfill your payment responsibilities. If your income is unpredictable or too low, the court might not allow you to file under Chapter 13 bankruptcy law.

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

Commencing a Chapter 13 Bankruptcy

Before filing a Chapter 13 bankruptcy, you must go through credit counseling from an agency authorized 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 furnish reduced rate counseling and, in a few cases, free counseling.

Chapter 13 Repayment Plans

The most significant component of your Chapter 13 bankruptcy paperwork is your repayment plan. It identifies in detail how much money you’ll dedicate to every one of your debts. There’s no standard form for the plan. But, almost all courts provide their own forms.

How Much Will You Be Required to Pay

Your Chapter 13 plan must pay specific debts in full. These debts are called “priority debts” because they’re viewed 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 normal payments on secured debts.

The plan must establish that any income you have remaining after getting to these compulsory payments will go toward paying off your unsecured debts. You don’t have to repay these unsecured debts in full. You just have to exhibit that you’re applying any unconsumed income towards their repayment.

How Long Will Your Repayment Plan Last

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 before the date you filed for bankruptcy is more than the average income for your state, you’ll have to volunteer a five-year plan. If your income is less than the typical, you may suggest a three-year plan.

Regardless of how much you bring in, your plan stops 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 Produce Plan Payments

If you sustain a job loss after embarking on 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 for the discharge of your debts on the ground of hardship. Hardship may include the abrupt loss of a job due to a company closedown or a serious debilitating sickness. If the bankruptcy court won’t allow you to change your plan or give you a hardship discharge, you may be able to shift to a Chapter 7 bankruptcy.

How Does a Chapter 13 Case Conclude

After you finish your repayment plan, every leftover debt that’s eligible for a discharge is wiped out. But, before you’ll be able to acquire a discharge, you must prove to the court that you’re up-to-date on your child support responsibilities and that you’ve finished a budget counseling course with an agency approved by the United States Trustee. This budget counseling course is in addition to the required credit counseling you experience prior to filing for bankruptcy.