Chapter 13 bankruptcy, also called a wage earner’s plan, allows individuals with regular
income to develop a plan to repay debts in more favorable terms than what came with the
Often there is no interest in the payment plan. Debtors propose a repayment plan that
allows the debtor to make installments to creditors over a span of three to five years.
The length of the plan will be three years if the debtor’s current monthly income is
less than the applicable state median, unless the court approves a longer period
“for cause.” If the debtor’s current monthly income is greater than the applicable
state median, then the length of the plan is typically five years. During this three
to five year period the law forbids creditors from starting or continuing collection
efforts, this is known as a “stay.”
Chapter 13 process and timeline
There are various steps that need to be taken in order to successfully file for
chapter 13 bankruptcy. Prior to filing for bankruptcy, you must receive credit
counseling from an agency approved by the United States Trustees office.
The court – Your case officially begins on the date your attorney files your petition with
the federal court. Approximately 15 days later, the court issues a notice of
commencement of the case to all your creditors. This notifies them that a “stay”
is in effect, sets the date for a 341 meeting of creditors before a court-appointed
trustee, and informs your creditors of the final date for filing any complaints or
objections with the court (typically 30 days).
Your planned repayment schedule must be filed within 15 days unless
your attorney included it in the original petition.
The 341 meeting of creditors is held approximately 20-40 days after your petition
is filed. Unless the amount due to a particular creditor is extremely large, the
creditors typically do not attend the 341 meeting of creditors. After the 341
meeting, if there are no issues, you can expect to receive your discharge
between 60-90 days.
Once you complete your repayment plan, all remaining debts that are eligible
for discharge will be wiped out. However, before you can receive a discharge
the court must see that you have completed a budget counseling course with an
agency approved by the United States Trustee, and, if applicable, that you
are current on child support, alimony and/or student loans.
Eligibility for Chapter 13
Chapter 13 bankruptcy is not for everyone. Typically, chapter 13 is for those
with a steady income. This is because it requires you to use your income to repay
some or all of your debts. The court may not allow you to file for this type of
bankruptcy if your income is too low or irregular. You may also be ineligible if
your total debt burden is too high. Secured debts cannot exceed $1,010,650 and
unsecured debts cannot exceed $336,900. Secured debts are those that give
creditors the right to take a specific item of property, while an unsecured
debt does not give creditors that right.
Businesses and a sole proprietorship cannot file for Chapter 13 bankruptcy in
the name of their business. If they wish to file in the name of their business,
they must declare bankruptcy under Chapter 11. However, a business owner may
file for Chapter 13 as an individual and include business-related debts for
which the business owner is personally liable.
Some Advantages for Filing Chapter 13
1.Provides you with more time to make your payments and settle debts
2.Chapter 13 trustees may be flexible on terms and may allow you to reduce
the amount of each payment or even surrender an item of your property in
order to lower your payments.
3.Once a successful repayment plan is completed, you are no longer obligated
to pay creditors who were in the repayment plan in full
4.Debtors are allowed to keep all property throughout the Chapter 13 process
5.While a Chapter 13 bankruptcy does stay on your record, it will be easier
to explain and is looked upon more favorably by lenders than missed debt
payments, defaults, repossessions and lawsuits
6.Filing for Chapter 13 can stop foreclosure proceedings and cure delinquent
mortgage payments over time
7.The sooner you declare bankruptcy, the sooner you can start
rebuilding your credit
Chapter 7 vs. Chapter 13
Both Chapter 7 and Chapter 13 bankruptcies have their advantages and disadvantages.
There are several steps you can follow in order to make a comparison and determine
which chapter is best for your specific case.
First, you must determine if you qualify for either a Chapter 7 or
Chapter 13 bankruptcy. If your monthly income is less than or equal to the
median income of your state, then you qualify for Chapter 7. If you do not
qualify for a chapter 7, then you will have no choice but to file for Chapter
13 unless you can pass a means test which determines if a family or individual
is eligible for financial aid from the government.
If you happen to qualify for both chapter 7 and chapter 13, you must determine
which is more beneficial or desirable for you.
Chapter 7 allows you to have your debts forgiven, while Chapter 13 requires
you to pay your debt, although typically at a lower rate than originally agreed upon.
Chapter 7 liquidates all of your non-exempt assets while Chapter 13 does not.
Therefore, if you wish to keep some of your bigger items (such as a car or a home),
Chapter 13 may be preferable.
Chapter 13 sets up either a 3 or 5 year payment schedule depending on your income.
If you are unable to repay your debts within the time given on your schedule,
then you may have to file for Chapter 7.
Our firm will be able to efficiently examine the details of your financial
situation and determine which bankruptcy chapter is most beneficial for
you and your specific situation.
If you feel you cannot afford a payment plan, consider a Chapter 7