What is Chapter 13 Bankruptcy?

Chapter 13 is one type of bankruptcy available to Americans. Chapter 13 is popular because it allows you to keep your car and save your home, while using a payment plan to repay some or all debt within three to five years. Many people prefer Chapter 13 to Chapter 7 because they are permitted to keep their property, even though they may not be able to write off as much of their debt.

This type of bankruptcy is sometimes referred to as reorganization bankruptcy because most debts are repaid. Individuals must show the bankruptcy court that they have enough income to repay their debts. A court may not permit an individual to file for Chapter 13 bankruptcy if income is too low or is irregular. Eligibility for Chapter 13 is also determined by the amount of debt. Unsecured debt cannot exceed $336,900 and secured debt may not exceed $1,010,650.

Consumers must participate in credit counseling from an approved party before they may file for bankruptcy. They also need to complete several documents, develop a repayment plan, and pay a filing fee. The repayment plan describes how much the individual will pay toward each debt and how these payments will be made. Priority debts like alimony, child support, some tax obligations, and wages due to employees must be paid in full.

A car and mortgage payment plan, as well as a plan to repay other secured debts and associated arrearages, should also be included. A repayment plan must illustrate that any remaining disposable income will be used to repay unsecured debts such as credit card bills. The individual need not fully repay unsecured debts. In some cases, the person may not be required to make any payments on them.

The length of a Chapter 13 repayment plan is based on the amount the individual owes and how much he or she earns. If average monthly income for a six-month period immediately preceding bankruptcy filing exceeds state median income, a five-year repayment plan is required. If it is lower, a three-year plan should be proposed.

A repayment plan may be modified or certain debts may be discharged if a hardship prevents the individual from completing the repayment plan. In some cases, the bankruptcy may be dismissed or converted to Chapter 7. Otherwise, a Chapter 13 bankruptcy is discharged and eligible remaining debts are written off once the individual completes the repayment plan and an approved budget counseling course.  To find out more, contact an expert on this site!