| A chapter 13 bankruptcy is sometimes referred to as a wage earner's plan. It enables individuals with regular income to present a plan to repay all or part of their debts. Under this chapter 13 bankruptcy law, debtors propose a repayment plan for creditors to make installment payments to creditors over three to five years. If the debtor's current monthly income is less than the applicable state median, the plan may be for three years unless the court approves or requires a longer period of repayment under chapter 13 bankruptcy law. If the chapter 13 bankruptcy debtor's current income is greater than the applicable state median, the chapter 13 bankruptcy plan generally must continue for five years. A chapter 13 bankruptcy plan can not provide for payments over a period longer than five years. 11 U.S.C. 1322(d). During this time chapter 13 bankruptcy law forbids creditors from initiating or continuing collection efforts. |
| The following chapter 13 bankruptcy information applies only to chapter 13 bankruptcy proceedings, other types of bankruptcy work differently. |
| BENEFITS OF CHAPTER 13 BANKRUPTCY |
| Chapter 13 bankruptcy offers individuals advantages over liquidation under chapter 7 bankruptcy. Perhaps most significantly, chapter 13 provides individuals with an opportunity to save their homes from foreclosure by creating a repayment plan for mortgage lenders. By filing under bankruptcy 13, individuals can stop foreclosure proceedings and have the opportunity to cure delinquent mortgage payments over the time of the chapter 13 bankruptcy plan. Nevertheless, chapter 13 bankruptcy debtors must still make all mortgage payments in full that come due during the chapter 13 plan period on time as they come due. Another advantage of chapter 13 bankruptcy law is that it allows individuals to re-amortize secured debts (other than a mortgage for their primary residence) and pay them over the life of the chapter 13 bankruptcy plan. Taking this action may lower the payments and make them more affordable. Chapter 13 bankruptcy law also has a special rules to protect third parties who are liable with the debtor (co-debtors) on "consumer debts." This co-debtor stay provision often protects co-signers during the chapter 13 bankruptcy plan. Finally, chapter 13 bankruptcy acts like a consolidation loan under which the debtor makes the plan payments to a chapter 13 bankruptcy trustee who then disburses payments to creditors evenly. Individuals should have no direct contact with creditors while in the chapter 13 bankruptcy process. |
| CHAPTER 13 BANKRUPTCY ELIGIBILITY |
| Any individual, even if self-employed or operating a business, can eligible for chapter 13 bankruptcy relief so long as the debtor's unsecured debts are less than $336,900 and secured debts are less than $1,010,650. 11 U.S.C. 109(e). These amounts are adjusted periodically to reflect inflation and changes in the consumer price index. A corporation or partnership may not, under any circumstance, be a debtor in chapter 13 bankruptcy. There are other restrictions, but the one discussed above is the most common issue in chapter 13 bankruptcy law. |
| HOW THE CHAPTER 13 BANKRUPTCY PROCESS WORKS |
| A chapter 13 bankruptcy case begins with the filing of a petition with the US Bankruptcy Court serving the area where the debtor lives. Unless the court orders otherwise, the debtor must also file with the court: certain schedules and financial disclosure statements discussed in Fed. R. Bankr. P. 1007(b). The debtor must also have a certificate of credit counseling and a copy of any debt repayment plan prepared through credit counseling agency, as well as paystubs and other required chapter 13 information and documents. The debtor must provide the chapter 13 bankruptcy law case trustee with copy tax returns for at least the most recent tax year. Once the chapter 13 bankruptcy is filed, the chapter 13 bankruptcy debtor will meet with the case trustee so that the trustee may evaluate the debtor's ability to fund his or her chapter 13 plan. If the trustee is satisfied with the debtor's income and ability to pay and has no other issues with the case, the chapter 13 bankruptcy trustee then recommends the case for confirmation. Only a bankruptcy judge can formally "confirm" a chapter 13 bankruptcy plan. However, bankruptcy judges rely heavily on the opinion of chapter 13 bankruptcy information considered by the trustee and often approve the trustee's recommendation on the case. |
| After the case is confirmed by the bankruptcy judge, the debtor makes regular monthly chapter 13 bankruptcy payments into their plan and that money gets disbursed in an orderly fashion to creditors on a "pro rata" basis. Chapter 13 bankruptcy debtors must also follow through with other obligations of chapter 13 which can be varied. |
