Introduction Chapter 13
Chapter 13 restructures overwhelming debt into a repayment plan lasting three to five years and lets you keep assets like your home.
Chapter 13 bankruptcy lets overwhelmed consumers restructure their debts under the protection of a federal court, setting up a repayment period of three to five years.
This is also called “wage earners” bankruptcy, because you must have a regular income to qualify. The goal is to resolve some debts and get current on secured loans — those with collateral, such as a home or car.
Chapter 13 bankruptcy takes longer than the other common form of consumer bankruptcy, Chapter 7, but it’s a better option if you have assets you want to hold onto and you could repay some or all of your debt if it were restructured.
To qualify for Chapter 13 bankruptcy:
You must have regular income
Your unsecured debt cannot exceed $394,725, and your secured debt cannot exceed $1,184,200
You must be current on tax filings
You cannot have filed for Chapter 13 in the past two years or Chapter 7 in the past four years
You cannot have filed a bankruptcy petition (Chapter 7 or 13) in the previous 180 days that was dismissed for certain reasons, such as failing to appear in court or comply with court orders
Is Chapter 13 bankruptcy right for you?
Consider bankruptcy if your problem debts total more than half your annual income or would take five years or more to pay off even if you took extreme measures. Chapter 13 may be your best bankruptcy route if:
You want to keep certain assets or you’re behind on your mortgage or car payments and want to make them up over time
Most of your debts are student loans, child support or other debts that either can’t be or are highly unlikely to be discharged under Chapter 7
You have a co-signer on an account in arrears. With Chapter 7, creditors are free to go after your co-signer even though you’re protected. If you file Chapter 13, you can arrange to pay off the co-signed debt in your repayment plan, protecting your co-signer.
Paying Off Debt, Personal Finance
Chapter 13 Bankruptcy stays on your credit reports for 7 years from the filing date. During this time you’ll find it harder to get credit. Even so, your credit scores start should start to recover.
Some debts can’t be erased in bankruptcy, such as recent taxes, child support and student loans. Bankruptcy still may be an option for you, though, if erasing other kinds of debt — credit cards, personal loans, medical bills — would free up enough money to pay the debts that can’t be erased.
Meet with a credit counselor from a nonprofit credit counseling agency and with a bankruptcy attorney. Both Initial Consultations should be free. These meetings will help you understand your circumstances and decide whether bankruptcy is the best route to get your finances back on track.
1. Credit counseling: Complete Pre-filing Bankruptcy counseling through a nonprofit credit counseling agency. Your counselor may help you draft a repayment plan.
2. Get an attorney: Hire a qualified bankruptcy attorney. Chapter 13 is very complex, and skipping a step or improperly filling out a form can lead to your case being thrown out or not having certain debts covered.
3. Fill out paperwork: Your attorney will help filling out the various needed forms. Ggather information on your whole financial picture, including debts, income, property and monthly expenses.
4. Submit bankruptcy petition: Also known as “filing” the bankruptcy, submitting the various forms kicks off the process. A bankruptcy trustee will be appointed. As soon as you file, you enter what’s called an “automatic stay,” which means that most attempts to collect on your debts must cease.
5. Submitting payment plan: Within 14 days of filing the petition, you must submit a proposed payment plan. You must start making payments on the plan within 30 days of filing the petition, even if it hasn’t been approved yet.
6. Meeting of creditors: Between 21 and 50 days after filing the petition, the trustee will host a meeting in which creditors can discuss any issues they have with you.
7. Confirmation hearing: No later than 45 days after the meeting of creditors, you, the trustee and creditors who wish to attend meet in court to confirm the payment plan.
8. Payment: Over three to five years, creditors are paid as agreed under the plan.
9. Debtor education course: Before the Chapter 13 bankruptcy is complete, you must complete a “debtor education course” from a nonprofit credit counseling agency.