Chapter 13 Bankruptcy

Often referred to as a REORGANIZATION BANKRUPTCY or a WAGE EARNER BANKRUPTCY, Chapter 13 bankruptcy is for individuals that cannot qualify for Chapter 7, or have the means and desire to repay their debts over a three to five year period. Typical Chapter 13 filers would include homeowner’s, debtor’s with non-dischargeable debts, and debtors with substantial personal property. The Chapter 13 bankruptcy allows the filer to pay all or a portion of their debts under the supervision and the protection of the U.S. Bankruptcy Court in exchange for monthly payments.

To be eligible for Chapter 13, the debtor must have a steady and reliable income. The individual is typically overwhelmed with debt and unable to pay the full obligation on the debts. The filer submits to the court a proposed plan to fully or partially repay the creditors over three to five years.

The Chapter 13 bankruptcy has the same automatic stay as the Chapter 7. Upon the successful completion of the payment plan the debtor receives an official discharge and certificate of completion, which extinguishes all obligations to make any further payments on unsecured debts, even where the creditor was not paid in full.

Chapter 13 Requirements

To qualify for a Chapter 13 bankruptcy, you will have to have stable employment or other stable income with “disposable income.” Disposable income is that income that is left over after you pay your necessities of life, such as food and utilities. Your secured debt cannot exceed $1,010,650 and your unsecured debt must be less than $336,900. These amounts are updated according the Consumer Price Index. You may file a Chapter 13 even if you have previously filed a Chapter 7 or Chapter 13, so long as the previous case in no longer pending.

The Chapter 13 bankruptcy provides you debt relief, elimination of financial problems, an end to harassment from creditors, and consolidation of all or most of your debts into a single monthly payment. The amount of your payment and the length of time (from 3 - 5 years) you will have to make the payments will depend upon your current income and current expenses, the type of credit you have, and the total amounts you owe. The proposed payment plan is complex and you are encouraged to consult with one of our bankruptcy attorneys to assist you in the process.

The Chapter 13 bankruptcy consolidates all or most of your debt into a single payment that you will make to the Bankruptcy Trustee who will allocate the payment among your creditors. The Chapter 13 generally eliminates most interest and penalties from the individual debts. Your creditors are prohibited from contacting you or making any debt collection efforts against you.

Chapter 13 Process

As with the Chapter 7 bankruptcy, Chapter 13 requires the filing of a petition with the bankruptcy court along with a Statement of Financial Affairs. These documents summarize:

• Income from employment or business operations including amounts and sources
• Other income
• Payments made to the creditors within 90 days of the filing
• Payments made within one year of filing to creditors who were "insiders" - relatives, partners and corporations where you are an officer of the company
• A list of lawsuits that you were a party to within a year of filing
• All property, including that which was garnished or seized
• Property repossessed within one year before filing
• Assignment of property for benefit of creditors within 120 days before filing
• Gifts and charitable contributions made within one year of filing
• Losses from fire, theft, gambling, etc., within one year or since the beginning of the action
• Payments made for debt counseling or bankruptcy, including attorney fees
• Transfers of property made within two years before filing
• Property transferred to a trust within 10 years prior to filing
• Financial accounts that were closed within one year
• Safe deposit boxes
• Setoffs to creditors
• Property held for another person
• All premises occupied within the last 3 years.
• The names and addresses of spouses and former spouses if the debtor lived in community property state.
• Any businesses owned

It's important that all forms and information provided are accurate. Debts not listed will not be canceled. Failing to list assets may look like you are trying to hide them and may result in serious fines, fraud charges or denial of bankruptcy relief.

Your petition must be accompanied by a proposed payment plan, which must provide for payment of all "priority claims" in full unless the creditor agrees to a different plan. If the claim is for domestic support (child support or alimony), you agree to contribute all of your disposable income to a five-year plan. Priority claims are given a special status under bankruptcy law, such as taxes and the fees associated with filing for bankruptcy. There are limits on modifying payments due on home mortgages.

An appointed trustee must review the proposed plan for accuracy and feasibility. The plan is distributed to creditors who have the right to object to the plan if it is unreasonable.

If the plan is approved, you keep all assets during the period of the plan. Monthly payments are made to the trustee who then pays the funds to the creditors according to the plan. When the plan is completed as approved, the rest of the debts are discharged. However, if the plan was not completed in full over the time allowed, several alternatives are available depending on why the plan was not completed.

Payment Plan Incomplete

In situations where you are unable to complete the payment plan, you will be faced with several potential outcomes. First, if you are unable to make the payments due to circumstances you are not “just held accountable” for, and your creditors have received as much as they would have in a Chapter 7, then the Bankruptcy Trustee may support a modification to the plan. Second, you may be able to apply for a hardship discharge if you have lost your job or had a serious illness. Lastly, if you were unable to complete the plan for other reasons, your creditors may apply to the bankruptcy court to terminate your Chapter 13. If the creditor(s) are successful in terminating your Chapter 13, then collection efforts against you may resume.