In a Chapter 13, debtors pay back all or a portion of their debt over a three-to-five year period. In order to qualify for Chapter 13, you must have enough disposable income to pay back at least a portion of your debt, and your debt must be within certain limits. Thus, Chapter 13 bankruptcy is also known as “wage earner’s bankruptcy.”
Common reasons for filing Chapter 13 include:
As with Chapter 7, a debtor must receive credit counseling from an approved agency prior to filing, and certain forms (“schedules”) must then be filed with the U.S. Bankruptcy Court giving information about assets, debts, income and expenses. A bankruptcy trustee is assigned to the case, and there is a Section 341 Meeting, also known as the First Meeting of Creditors.
Unlike with Chapter 7, the meeting of creditors is not the last hearing the debtor must attend. The central feature of a Chapter 13 bankruptcy is the Chapter 13 Plan, which is simply a plan describing how the debtor intends to repay their debts. This plan must be confirmed before the assigned bankruptcy judge.
Some debts, like child support, are “priority debts” and must be paid in full; others may be paid at a very low percentage of what is actually owed. Mortgage and vehicle payments must be kept current.
Mortgage arrears may be be brought current and Debtors can save their home. Because the plan period lasts three to five years, it is likely that the debtor’s circumstances will change. The debtor may need to request modifications of the plan if the original plan is no longer feasible. If the court declines to modify the plan, the case may be converted to a Chapter 7 if it qualifies.
At the conclusion of the plan period, if the debtor demonstrates he is current on certain obligations, and has completed a debtor education course, the remainder of his debt is erased.
If you would like to learn more about Chapter 13 bankruptcy and other debt resolution options, we invite you to contact our firm.