Chapter 13 Bankruptcy Overview

admin, 04 June 2008,
Categories: Bankruptcy
Tags: Bankruptcy, chapter 13

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Chapter 13 Bankruptcy

Chapter 13 bankruptcy is designed for individuals with an income to be able to develop a plan to repay all or part of their debts. The law forbids creditors from all collection activity during this time. It is a legal way of protecting some or all of your assets while spreading out payments over 3-5 years. This feature allows you to keep the assets during the plan and after it is completed. This is an action that some take to prevent foreclosure on their home. Because of the requirement of a regular income, Chapter 13 bankruptcy is also called a wage earner’s plan.

Who can qualify?

To qualify for Chapter 13 relief you must have a regular income. The amount of unsecured debts (credit car loans and signature loans etc.) must be less than $307,675. Your secured debts (mortgage and car loans etc.) must be less than $922,975. You must have received credit counseling from an approved individual or agency within the 180 days prior to filling. You cannot file for a Chapter 13 if in the preceding 180 days a prior bankruptcy petition was voluntarily dismissed related to creditors seeking relief to recover secured property. Nor can you file if a bankruptcy was dismissed, within 180 days, for willful failure to appear before the court or comply with orders of the court. If you have received a discharge in a Chapter 7, 11, or 12 within the last 4 years or one under a Chapter13 within the last 2 years a Chapter 13 discharge won’t be granted.

Payment plan

This plan for restructuring debt must either provide for full satisfaction of debts or use of all your disposable income for the repayment plan period. Disposable income is the income that is left after all necessary living expenses and taxes have been paid. All priority claims, such as taxes, must be provided for in full. For the payment plan to work you must make all payments as scheduled. This will force you to live on a restricted budget for the life of the plan. Also you cannot incur any debt while on the plan unless approved by the trustee. This plan must be filed with your petition or within15 days of filing the petition. This plan should be one that was devised during credit counseling or one that you have made with the trustee.

Trustee

The trustee is the one who will verify the reasonableness and accuracy of your plan. You will want to be very honest about your financial situation with this person. This person’s recommendations carry a lot of weight in court. The trustee will want to make sure that the plan is workable because there will be a hearing held where your creditors can challenge your proposal if they think it is unreasonable. You will be required to provide the trustee with:

Recent tax returns

A list of all creditors with the amounts and nature or their claims
A list of all income including amount, frequency and source
A list of all your property
A detailed list of all your monthly living expenses (food, clothing and shelter)

The trustee is also the person that will receive all payments and make their distribution.

Next Step: Who Is Eligible For Chapter 13 Bankruptcy?