| A Procedural Overview of Chapter 13 Bankruptcy |
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| Written by Harvey L. Cox |
| Saturday, 21 March 2009 17:25 |
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Chapter 13 bankruptcy law is occasionally called reorganization bankruptcy. It's very different than Chapter 7 bankruptcy. In a Chapter 7 bankruptcy nearly all of your debts are extinguished. But, you must forfeit any belongings that aren't exempt from seizure by your creditors. Under Chapter 13 bankruptcy law, you aren't required to give up any material items. But, you're expected to use your income to pay back most or all of what you owe your creditors. Your payments to creditors are made over time, usually from three to five years. The time frame turns on the size of your debts and income.
Chapter 13 bankruptcy law is occasionally called reorganization bankruptcy. It's very different than Chapter 7 bankruptcy. In a Chapter 7 bankruptcy nearly all of your debts are extinguished. But, you must forfeit any belongings that aren't exempt from seizure by your creditors. Under Chapter 13 bankruptcy law, you aren't required to give up any material items. But, you're expected to use your income to pay back most or all of what you owe your creditors. Your payments to creditors are made over time, usually from three to five years. The time frame turns on the size of your debts and income. Chapter 13 Bankruptcy Law Eligibility Chapter 13 bankruptcy isn't for everyone. Chapter 13 bankruptcy law involves utilizing your income to pay back some or all of your debt. So, you'll have to exhibit to the court that you're capable of fulfilling your payment obligations. If your income is irregular or too low, the court may not allow you to file under Chapter 13 bankruptcy law. If your entire debt load is overly high, you're likewise ineligible to file under Chapter 13 bankruptcy law. Your secured debts can't be greater than $1,010,650. A "secured debt" is one that gives a creditor the right to take away a specific piece of property (like your home or automobile) if you don't pay the debt. Your unsecured debts can't be more than $336,900. An "unsecured debt" doesn't allow your creditor the right to take your properties. An example of an "unsecured debt" is a credit card or a medical bill. Initiating a Chapter 13 Bankruptcy Prior to filing a Chapter 13 bankruptcy, you must go through credit counseling from an agency authorized by the United States Trustee's office. These agencies are allowed to charge a fee for their services. But, if you can't afford to pay the fee, they have to supply cut rate counseling and, in a few cases, free counseling. Repayment Plans in Chapter 13 The most fundamental part of your Chapter 13 bankruptcy paperwork is your repayment plan. It delineates in detail how much money you'll pay to every one of your debts. There's no recognized form for the plan. But, virtually all courts provide their own forms. How Much Will You Be Required to Pay Your Chapter 13 plan must pay back specific debts fully. These debts are called "priority debts" because they're counted important enough to jump to the forefront of the bankruptcy repayment line. Priority debts include child support and alimony, wages you owe to employees, and certain tax responsibilities. Additionally, your plan must include your normal payments on secured debts. The plan must show that any income you have left over after making these mandatory payments will go to paying back your unsecured debts. You don't have to pay these unsecured debts fully. You only have to exhibit that you're giving any remaining income towards their repayment. How Long Is Your Repayment Plan The length of your repayment plan hinges upon how much you earn and how big your debts are. If your normal monthly income during the six months before the date you filed for bankruptcy is more than the average income for your state, you'll have to propose a five-year plan. If your income is smaller than the standard, you may offer a three-year plan. Regardless of how much you earn, your plan ceases when you repay each of your debts in full, even if you've not progressed to the three- or five-year mark. What Takes Place If You Can't Produce Plan Payments If you sustain a job loss after starting a payment plan or determine that you can't keep up the payments on your Chapter 13 bankruptcy plan, the bankruptcy trustee may alter your plan. It's even possible that the court could permit the discharge of your debts on the basis of hardship. Hardship may include the sudden loss of a job due to a company closing or a severe debilitating sickness. If the bankruptcy court won't allow you to vary your plan or permit you a hardship discharge, you may be able to switch to a Chapter 7 bankruptcy. How Does a Chapter 13 Case Conclude After you complete your repayment plan, each continuing debt that's eligible for a discharge is wiped out. But, before you'll be able to obtain a discharge, you must demonstrate to the court that you're up-to-date on your child support responsibilities and that you've completed a budget counseling course with an agency licensed by the United States Trustee. This budget counseling course is in addition to the compulsory credit counseling you go through prior to filing for bankruptcy. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Harvey L. Cox is a licensed attorney who runs a bankruptcy information site. Please go to The Bankruptcy Law Information Center to get more quality bankruptcy information and tips. |