Chapter 13 Bankruptcy
Under Chapter 13 bankruptcy, also called a “wage earners plan”, you’re able to reorganize your debts under a three- to five-year repayment plan using all the income you have available for repayment. Many debtors file for Chapter 13 bankruptcy because they don’t meet the income qualifications for Chapter 7 bankruptcy. Under Chapter 7 bankruptcy, you would have some assets liquidated to pay your creditors and the remaining debt discharged.
Video: Chapter 13 is also known as Wage Earner Bankruptcy
Who Qualifies for Chapter 13 Bankruptcy
Individuals who want to file Chapter 13 bankruptcy must have unsecured debts less than $336,900 and secured debts less than $1,010,650. These numbers are adjusted periodically, so check with the U.S. Courts or a bankruptcy attorney for the most recent qualification amounts.
You won’t be able to file for Chapter 13 bankruptcy if you had a bankruptcy dismissed in the previous 180 days because you didn’t go to court, follow orders of the court, or had your case dismissed because the court allowed your creditors to take property they held liens on.
Chapter 13 Pre-Filing Requirements
Before you file for Chapter 13 bankruptcy, you have to receive credit counseling from a government-approved credit counseling agency within 180 of filing. The U.S. Department of Justice has an online search for that you can use to find approved credit counseling agencies near you. Or, you can call (202) 524-4100.
Filing Chapter 13 Bankruptcy
To start bankruptcy proceedings, you or your attorney files a Chapter 13 bankruptcy petition with the bankruptcy court in your area. You can locate your local bankruptcy court by using the online search page provided by the Administrative Office of the U.S. Courts or by calling (202) 502-2600. When you file bankruptcy, you also have to provide the court with these documents:
- • a list of your assets and liabilities
• a list of your income and expenses
• a statement of financial affairs, listing information about your income and debts
• a list of your current contracts and leases
• a copy of your most recent tax returns
You can download all the official forms from the U.S. Courts website.
If you’re married, you must provide income, expenses, property ownership, and creditor information for both you and your spouse even if your spouse is not filing bankruptcy.
What is the Cost?
The filing fee for Chapter 13 bankruptcy is $274. This doesn’t include fees paid to your attorney for representing your bankruptcy case.
Video: Chapter 13 Bankruptcy Comes with Some Financial Restrictions
What Happens After You File
Once you file Chapter 13 bankruptcy, a trustee is assigned to your case. The trustee is responsible for evaluating your case, collecting your payments, and distributing your payments to your creditors.
Within 15 days of filing your bankruptcy petition, you must file a repayment plan that includes fixed payments to be given to the trustee regularly. You should start making payments to your trustee within 30 days of filing your bankruptcy petition, even if your repayment plan hasn’t been confirmed by the court.
After you file bankruptcy, your trustee will hold a meeting of the creditors. You’re required to attend this meeting and answer questions from your creditors and the trustee about your finances and the repayment plan. If you file with your spouse, both of you are required to attend the creditors’ meeting. If there are any problems with your repayment plan, they’re typically resolved during this meeting.
After the meeting of the creditors, your creditors file claims to receive distributions from your bankruptcy estate.
Finally, there will be a hearing on the repayment plan within 45 days of the meeting of the creditors. During this hearing, the judge decides whether to confirm your plan. Your creditors are allowed to object to the repayment plan, but it is ultimately the decision of the judge. If your plan is confirmed, then the trustee begins distributing payments to your creditors until the payment plan has been completed.
Advantages of Chapter 13 Bankruptcy
- • You can stop home foreclosure and repay the delinquent part of your mortgage over three to five years. During that time, you’re still responsible for making your regular mortgage payments. If you fail to do so, the lender can resume foreclosure proceedings once the bankruptcy plan has ended. The lender can also have your home foreclosed if the lender completes the sale before you file your bankruptcy petition.
• You don't have to sell your assets to pay your creditors.
• After you’ve filed bankruptcy, you are granted an automatic stay which keeps creditors from attempting to collect from you.
• You may be able to reschedule other secured debts and pay the balance over the life of your Chapter 13 repayment plan.
• Under Chapter 13 bankruptcy, your co-signers are protected from collection efforts.
Disadvantages of Chapter 13 Bankruptcy
- • Chapter 13 bankruptcy goes on your credit report and remains for 7 years. The bankruptcy will affect your credit score and your ability to get credit cards and loans in the future. The effect won’t be so devastating because the bankruptcy court discourages bankruptcy filers from obtaining new debt while going through a repayment plan. Additional debt could affect your ability to complete your plan.
• If you miss any payments, your case will be dismissed.
Disclaimer
We have provided information as a service to consumers. This is not legal advice and should not be construed as such. For information about filing chapter 13 or any other chapter bankruptcy, seek professional legal counsel.
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