Most people who look at Chapter 13 bankruptcy as an option have either found out they do not qualify for Chapter 7 bankruptcy or would like to find ways to keep assets that would otherwise be discharged through a Chapter 7.
When you are considering filing for Chapter 13 bankruptcy, there are some important things to consider:
- Eligibility: An individual is eligible to file for Chapter 13 if he or she has less than $360,475 in unsecured debts and less than $1,081,400 in secured debts. An individual may not file for Chapter 13, however, if he or she filed a prior bankruptcy petition that was dismissed in the last 180 days due to failure to appear or comply with a court order or due to a creditors’ petition for relief. Furthermore, a debtor must receive credit counseling before filing for bankruptcy.
- Information to give the court: As part of his or her bankruptcy petition, a debtor must include the following information: A list of the creditors and nature of the claims against the debtor, the debtor’s income, a list of the debtor’s property and a list of the debtor’s monthly living expenses (everything from food to taxes).
- The Chapter 13 plan: The heart of a Chapter 13 case is the bankruptcy plan. The debtor may file a repayment plan with his or her bankruptcy petition or within 14 days after filing the petition. The plan must provide how the debtor will repay his or her debts on a regular basis (biweekly or monthly). Generally, the debtor will make payments to the bankruptcy trustee, who will then pay back creditors. A bankruptcy plan will usually span three or five years.
- Creditors: There are three types of creditors in a Chapter 13 bankruptcy case: priority creditors, secured creditors and unsecured creditors. Priority creditors (those that have special claims under U.S. bankruptcy law) must be paid first, then secured creditors (where a creditor has a right to take property back when someone defaults on a loan), and finally unsecured creditors. Your bankruptcy plan must include full payment to priority creditors and secured creditors, but does not need to pay unsecured creditors in full as long as the plan provides for your entire disposable income.
- Discharging debts: Upon completion of all of your Chapter 13 bankruptcy plan payments, you may be able to discharge your debts. Generally, debtors will be able to discharge all of their debts provided by the plan except for certain debts listed in the Bankruptcy Code. Note: the debts that can be discharged in a Chapter 13 case are broader than those dischargeable through Chapter 7 bankruptcy.
- Fees: Debtors must pay a $235 case filing fee and a $46 administrative fee. These fees may be paid in installments, if necessary.
The above points are an overview and do not cover all of the specifics of a Chapter 13 bankruptcy case. Therefore, it is important to speak with an experienced bankruptcy lawyer before you file for Chapter 13.