Chapter 13 Bankruptcy
Chapter 13 Bankruptcy Explained2 min read
Many are unaware about the different types of bankruptcy they could be filing for. We’ve heard about the different chapters but don’t know which exactly would fit our needs best. The chapter just refers to the chapter the specific type of bankruptcy is located in Title 13 of the United States Bankruptcy Code.
Chapter 13 bankruptcy is sometimes referred to as “reorganization” bankruptcy for individuals.
How is Chapter 13 different than Chapter 7?
Chapter 13 is different from Chapter 7 bankruptcy in that Chapter 13 does not erase your debt. It actually reorganizes your debt to be able to pay it in a 3-5 year repayment plan. In Chapter 7, your property could be seized in order to pay your creditors. However, in Chapter 13, your property will not be seized and you will be left to partially or fully pay your creditors over that 3-5 year period.
Am I eligible to file for Chapter 13?
First off, you must be eligible to file for Chapter 13 bankruptcy by proving to the court that you make enough income to repay all or some of your debt.
You will be ineligible if:
your income is too low,
your income is irregular, or
your total debt burden is too high, meaning your unsecured debt is more than $383,175 and your secured debt exceeds $1,149,525.
If you are ineligible, you will not be allowed to file for Chapter 13.
The filing fee for Chapter 13 Bankruptcy is $310 and you must receive credit counseling from an agency approved by the U.S. Trustee’s office.
Your Repayment Plan and How it Will Work
Your repayment plan will detail how much and how you will pay for each debt you owe. Debts are paid in a certain order. A “priority debt”, such as child support payment or wages you owe to employees, will be paid first and in full. Then you must make payments owed on any secured debt, such as a mortgage or a car loan. After that, any extra income left over must be used towards your unsecured debts, which don’t have to be paid in full or in some cases, even at all.
If for some reason, like job loss, you cannot keep up with payments, you may ask the trustee to modify your repayment plan. If the trustee refuses to do so, you may ask the court to convert you to a Chapter 7 bankruptcy case.
If you are able to stick with your repayment plan and see it through, your case will be discharged as long as you complete a budget counseling course approved by the U.S. Trustee and you are not delinquent on any alimony or child support obligations.