Chapter 13 bankruptcy enables consumer debtors with regular income to develop a repayment plan. In filing chapter 13, they can keep all of their properties. But depending on the size of their debts and the amount of their income, they have to reorganize a payment plan and use their income to pay some or all of their debts, usually over 3 to 5 years.
If debtors don’t qualify to file Chapter 7 bankruptcy, Chapter 13 bankruptcy might be a good option for them. However, the new bankruptcy law does not give all bankrupt debtors the opportunity to reorganize their assets; they may still have to prove that they can pay theirs debts as arranged with their income.
Bankruptcy Chapter 13 Requirements
As Chapter 13 requires a filer — an individual, husband or wife, or a sole proprietor — to use their income to repay some or all of their debts, they must not have an irregular or a low-income. While the Chapter7 bankruptcy filers have to prove that they can no longer pay any of their debts, Chapter13 bankruptcy filers have to prove that they can pay their debts.
The amount of debts must not also be way too excessive. According to uscourts.gov, the amount of the secured debts should not exceed $922,975, and the amounts of the unsecured debts are less than $307,675. These amounts are adjusted periodically to show changes in the consumer price index.
Prospective bankruptcy filers would also need to present a certificate of a credit counseling course completion form an approved credit counseling agency, within 180 days before filing. And if they enroll in debt management plans as required by the credit counseling, the programs must be filed with the court.
For filing Chapter 13 filers are required to file many documents that include federal tax returns for the most recent tax year and earlier years when the case began, assets and liabilities, earnings and spending, as well as to send a debt repayment plan along with the $274 filing-fee.
Chapter 13 Bankruptcy Process
Upon filing, once the bankruptcy court verifies and approves that the filer has a regular job with regular income; it will prompt the debtor to immediately start making payments within 30-days of filing. An appointed case trustee may automatically deduct some monthly payments from the wages and then instantly distributes to the creditors.
In the Chapter 13 Bankruptcy, the trustee pays creditors in order of the claim they hold — priority, secured and unsecured. The trustee will make sure that all debts, after priority debt, are paid in order according to bankruptcy code rules. And if the debtor manages to complete all the payment plans, he or she is given a full plan discharge.
In short, the new bankruptcy law has strict rules about who can qualify for Chapter 13 bankruptcy. If you are a regular wage earner and are considering filing, learn more about this option and then consult with an experienced bankruptcy lawyer to get an expert opinion on Chapter 13. Don’t worry about the initial costs since most first consultations are free.