Chapter 13 Bankruptcy is a type of bankruptcy filing that creates a personal reorganization of secured and unsecured debt. Chapter 13 is commonly referred to as a “wage earner’s plan”, or “debt consolidation on steroids”. The Chapter 13 plan typically lasts for 3 or 5 years. During the pendency of the plan, all the bankruptcy protections and benefits are in place. However, they do not become permanent until after you’ve made the final plan payment.
The Chapter 13 plan payment amount has nothing to do with the amount of debt you have. Instead, it’s designed to reflect a monthly payment you can afford based on your disposable income or the value of your unexempt assets. A Chapter 13 Bankruptcy filing is typically most beneficial to filers who earn a substantial amount of income, want to protect their valuable assets, or need to adjust the balances or interest rates on their secured loans (i.e., car loans, mortgages, etc.).
How The Chapter 13 Bankruptcy Process Works
In a Chapter 13 Bankruptcy filing, debtors and their attorneys must prepare and submit the following:
- A list of all the creditors (including names, addresses, and balances)
- A list of all property owned by the debtor (including real estate, vehicles, electronics, household goods, bank accounts, etc.)
- Proof of income for the preceding 6 months (i.e., pay stubs, profit and loss reports, bank statements, etc.)
- A list of all the debtor’s monthly expenses
- Disclosures of any transfers of assets or property (especially to friends, relatives, or business partners)
The debtor then pays an agreed-upon monthly amount to a court-appointed bankruptcy trustee. The agreed-upon monthly amount is an amount that effectively consolidates the debts into one payment. In turn, the bankruptcy trustee distributes the money to the creditors. This way, debtors have no direct contact with their creditors. In fact, if a creditor makes direct contact with a bankruptcy debtor in an effort to collect on a debt included in the bankruptcy, they can be punished by the bankruptcy court and have to pay the debtor and the debtor’s attorney.
Who Can File for Chapter 13 Bankruptcy?
Any person with up to $419,275 in unsecured debt and/or $1,257,850 in secured debt is eligible to file for Chapter 13 Bankruptcy. These “debt ceilings” change from time-to-time and were last updated in April 2019. Eligibility also depends on the debtor proving to the courts that they can pay both their monthly household expenses and their Chapter 13 plan payments.
If an individual’s income is too low or irregular, the proposed repayment plan may be rejected on feasibility grounds. Businesses are not eligible for Chapter 13 Bankruptcy; however, a sole proprietor or self-employed individual may be eligible if they are personally responsible for any business-related debts.
Filing Fees and Mandatory Courses
When the official bankruptcy forms are filed with the court clerk, individuals are required to pay a bankruptcy filing fee and issue a certificate demonstrating that they received a mandatory credit counseling education from an agency approved by the United States Trustee’s office. The course helps the individual evaluate whether they have a significant enough amount of income to repay their creditors. After filing their case, individuals will also take a second debtor education course. For our clients, the fees associated with both courses are included in the legal fee.
What is the Repayment Plan?
The Chapter 13 payment plan is what primarily sets Chapter 13 apart from Chapter 7. Upon filing the Chapter 13 case, the first proposed plan is submitted for the Trustee and creditors to review. While creditors and the bankruptcy trustee both have the right to object to aspects of the payment plan, most plans are confirmable with a few minor adjustments. In most cases, the plan is confirmed by the court within 5 months of the initial Chapter 13 Bankruptcy case filing. If there is a change in circumstances during the pendency of the plan, the debtor is allowed to propose and make modifications to adjust to those changes.
Contact a Chapter 13 Bankruptcy Attorney Today
Emil Fleysher is an experienced and well-reviewed bankruptcy attorney who has filed thousands of bankruptcy cases for clients. Call The Law Offices of Fleysher Law, P.A. at 888-886-0020 or complete our contact form to schedule a free consultation.