Bankruptcy: Chapter 13
Chapter 13 is for honest individuals who wish to pay back what they owe, but could use a little bit of help from the courts. It is known as the wage earner’s plan. Chapter 13 is used to create a new repayment plan for individual debtors. This is ideal for the debtor who wants to retain control and ownership of their assets. If own a house and/or car which has built up equity which you wish to keep, Chapter 13 may be for you.
With this filing, a debtor and their creditors will work out out a three to five-year repayment plan. A portion of the debt may be discharged, and the debtor would not need to repay. The extent to how much debt is discharged will depend on the income of the debtor, as will the time frame for repayment. One advantage to Chapter 13, is that you can stop foreclosure proceedings, so long as you make the payments under the new repayment plan on time. Past due payments can be made current. The most immediate advantage is that filing under Chapter 13 will lowering your debt payments. Once you file for Chapter 13, a trustee will be appointed to your case, 11 U.S.C. § 1302, and once a payment plan is worked out, you will only need to make one regular payment to the trustee, and they will divvy that between the creditors. 11 U.S.C. § 1302(b). During the time of repayment, creditors cannot start or continue collection efforts, and will have no contact with you. 11 U.S.C. § 362. You can even make plan payments right through payroll deductions.
There are also restrictions on Chapter 13. The limit on the amount of debt involved is $1,010,650 in secured debt and $336,900 in unsecured debt. 11 U.S.C. § 109(e). Also, the debtor must have a stable income. Much of the payment plan will be determined from the debtors income. The debtor will pay all projected “disposable income” over an “applicable commitment period”. 11 U.S.C. § 1325. Once that is satisfied, unsecured creditors only need to receive at least as much under the plan as they would receive if the debtor’s assets were liquidated under chapter 7. Debts not discharged in chapter 13 include certain long term obligations like mortgages, debts for alimony or child support, certain taxes, debts for most government funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs, and debts for restitution or a criminal fine included in a sentence on the debtor’s conviction of a crime. 11 U.S.C. §§ 1328, 523(c); Fed. R. Bankr. P. 4007(c).
The first step in a Chapter 13 filing is a petition to the court. To draft that petition, you should seek a qualified attorney who practices bankruptcy law. Your attorney will need: a list of all creditors and the amounts owed; the source, amount, and frequency of your income; a list of all of your property; and a detailed list of the your monthly living expenses. Once that is compiled, an attorney would be able to advise you on whether Chapter 13 is right for you, and how to proceed.