Chapter 13 bankruptcy allows debtors with regular income to reorganize and repay certain debts on a monthly basis. It has a number of advantages and benefits over Chapter 7. Unlike Chapter 7, it takes three to five years to achieve bankruptcy discharge in Chapter 13 proceedings. In Chapter 13 you first classify debt, according to the type of debt and then you come up with a plan to repay debt according to the type of debt. There are three criteria for a Debtor repayment plan that any debt repayment arrangement must meet.
- You must commit all of your disposable income to any debt repayment plan for a period of at least three years, if you are a below median income debtor and five years if you are an above median income debtor.
- You must pay back to each creditor, at least, the amount the creditor would have received if you filed a Chapter 7 case. If you are keeping a car and you have had the car over two and one-half years you pay the value of the car and if you have had the car less than two and one-half years, you pay the amount owed on the car. Since the creditor could get the car back on day one if you filed a Chapter 7 case, you must pay what we call present value interest on the debt for secured property you are keeping. (This is a general rule, subject to exceptions.
- Chapter 13 provides a mechanism to repay most tax debt and to get rid of some tax debt.
- Child support must be provided for in a Chapter 13 case.
- Generally, you can pay a creditor back as much as you like provided you meet the criteria of a,b,c, and d.
- You must have regular sources of income to make the repayment plan.
Chapter 13 proceedings are initiated by filing a petition with the bankruptcy court. Your attorney will also file a statement of financial affairs, a schedule of assets and liability, a statement of current income and expenditures, a schedule of leases/executory contracts pending, and other documents relevant to your financial condition. You then appear before a hearing officer designated by the Chapter 13 Trustee, who questions you about your Chapter 13 repayment plan. Your creditors have the right to ask questions about your plan and file legal objections, which are few. You then appear before a judge, usually just by an attorney, without your presence, who will approve your case. During the term of your case, three to five years, you make regular payments to the Chapter 13 Trustee, who pays your bills, as set for the in your plan.Problems with Chapter 13
Although we all want to repay our debts, Chapter 13 is not for everyone. De not get into a Chapter 13 case that is over your head, as Chapter 13 is not easy. You will not have the use of credit while you are in Chapter 13. It is hard to repay all of your debt, which is why you are in trouble to begin with. While the rewards of a Chapter 13 case are great, the repayment plan is hard and a Chapter 13 case should only be entered after competent legal consultation. There is no one size fits all in Bankruptcy.