Chapter 13 Bankruptcy

If you're new here and would like to be notified the next time I write something, you may want to subscribe to my RSS feed. Thanks for Reading!


Chapter 13 is sometimes referred to as the “Wage Earner” plan. Individuals with regular income propose a plan to repay part or all of their debts over a three to five year period. Approval is not automatic. The plan has to be approved by the bankruptcy court after all creditors are given the opportunity to respond.

To be eligible for Chapter 13 bankruptcy the individual’s unsecured debt must be less than $307,675 and secured debt less than $922,975. Chapter 13 classifies debt as priority, secured and unsecured. Priority debt must be paid first. This includes any taxes due and the costs of the bankruptcy proceedings. Secured debt is paid second. This includes any loan with collateral; home, car, boat, etc. Unsecured debt includes everything else and is paid last. The debtor is not required to pay the full balance of unsecured debts. Income is verified and debtor must prove their disposable income (income left over each month after all bills are paid).

Chapter 13 has several appealing features. If your home is in danger of foreclosure by the lender, filing Chapter 13 will stop the proceedings. Delinquent payments can be forgiven allowing you to keep your home. But all future payments have to be made on time. In addition to mortgage payments, Chapter 13 allows individuals to restructure secured debt. Often this extends the loan period resulting in a lower monthly payment. It provides some protection for third parties and co-signers. The most important feature is as long as you make monthly payments you do not have to liquidate your assets.

With Chapter 13 the court looks at median income for the state you reside in. Median income is the average of all income earned in that state. If the debtor’s current monthly income is less than the applicable state median, the repayment plan will be for three years. If the income is greater than the applicable state median, the repayment plan is usually five years.

Current monthly income is based on the average monthly income for the six months prior to filing bankruptcy. It includes regular contributions to household expenses from nondebtors and income from the debtor’s spouse if the petition is joint. It does not include social security income or certain payments if the debtor is the victim of certain crimes. In addition to income, the debtor must also prove they received credit counseling, from an approved credit counseling agency, at least 180 days before filing.

Chapter 13 is initiated by filing a petition with the bankruptcy court closest to you. There are fees associated with this. The debtor must complete a list of all assets owned, all liabilities owed, a schedule of contracts or leases, a list of all monthly income and all monthly expenses and a financial statement. This stops collection attempts by the creditors.

A trustee is appointed to administer the case. They schedule a meeting with the creditors. The debtor is placed under oath and required to answer questions from the court and the creditors. After this hearing there’s a follow-up meeting and the debtor presents their repayment plan. The debtor must start making payments to creditors within 30 days of filing Chapter 13, even if the plan has not been approved.

Within 45 days after meeting with the creditors, the judge must decide if the repayment plan is feasible. If the plan is accepted payments are made to the trustee. The trustee pays the creditors. If the judge does not approve the petition the debtor has an opportunity to modify the plan and resubmit it to the court.

Discharge is the most difficult part of Chapter 13. The law is complex with recent major changes. It’s highly recommended that all debtors consult competent legal counsel to make sure all steps of the discharge are handled properly.

StumbleUpon It!

Related Posts

Filed Under Bankruptcy 

Comments

Got something to say?