Chapter 13 bankruptcy for individuals

Chapter 13 bankruptcy is  known as the “wage earner’s” bankruptcy because it enables individuals with regular income to repay all or part of their debt through a three to five year repayment plan.  If your income is less than the median for your applicable household size, you may normally participate in a three year repayment plan.  Alternatively, if your income is above median you will likely have to complete a five year repayment plan.  Chapter 13 bankruptcy allows you to keep your property unlike Chapter 7 bankruptcy where your nonexempt assets are liquidated.  Upon filing Chapter 13 bankruptcy the automatic stay or bankruptcy protection prohibits creditors from starting or continuing collection efforts. 

What are the advantages of filing Chapter 13 bankruptcy?

There are several advantages to filing Chapter 13 bankruptcy.  Chapter 13 bankruptcy provides an opportunity to save your home by stopping foreclosure proceedings and allowing you to cure your mortgage delinquency.  Chapter 13 bankruptcy also allows you to keep property that might be sold in a Chapter 7 bankruptcy.  Another benefit of Chapter 13 bankruptcy is that you may be able to remove a second mortgage or lien (lien-stripping), or re-write a secured loan such as a car loan (cram-down).  Finally, Chapter 13 acts like a debt consolidation one payment is made to the trustee who then distributes payments to creditors.

Do I qualify for Chapter 13 bankruptcy?

In order to qualify for Chapter 13 bankruptcy you must be able to demonstrate to the court that you can afford to pay some or all of your debt through a repayment plan.  If your income is irregular or too low you may not qualify for Chapter 13 bankruptcy.

Chapter 13 bankruptcy also has limitations as to your financial burden.  You are precluded from filing Chapter 13 bankruptcy if your unsecured debts total more than $383,175 or your secured debts are more than $1,149,525.  U.S.C. §109(e).

What is the process for filing Chapter 13 bankruptcy?

Prior to filing bankruptcy  you have to complete a counseling class with an approved credit counseling agency.  This class is normally taken online or over the phone.  Currently the filing fee for Chapter 13 bankruptcy is $281.  Chapter 13 bankruptcy is initiated by the filing of the voluntary petition.  In addition to the petition other paperwork called the schedules, statements and Chapter 13 plan are filed with the court.  The schedules and statements contain information regarding your assets and liabilities, income and expenses, executory contracts and unexpired leases and a statement of your financial affairs.  The Chapter 13 plan designates which creditors are paid and amount they receive.  Your first Chapter 13 plan payment is generally due 30 days after your case is filed.

Upon filing Chapter 13 bankruptcy the automatic stay protects you from creditors being able to collect upon the debt.  However, creditors may in certain situations “lift” the automatic stay.  You should consult an experienced Tucson bankruptcy lawyer to find out if the bankruptcy stay will remain in effect throughout your Chapter 13 plan.

How much is the Chapter 13 plan payment?

The Chapter 13 plan payment is specific to each case.  Some people only pay a fraction of their debt through Chapter 13 bankruptcy while others pay most or all of their debt.  Priority debts such as child support or alimony or certain tax debt must be paid in full through a Chapter 13 plan.  In addition, secured creditors like a mortgage company or car lender must be paid in addition to catching up on any past due payments through the Chapter 13 plan.

Unlike priority and secured debt, Chapter 13 bankruptcy may reduce the amount you owe of unsecured debt, which includes credit cards, medical debt, personal loans, certain tax debt, balances from a repossession or foreclosure, payday loans and more.  The amount paid to your unsecured creditors through your repayment plan depends upon your disposable income and your nonexempt assets.  You should consult an experienced Tucson bankruptcy attorney for an estimate of your proposed plan payment.

What is the Meeting of Creditors?

The Meeting of Creditors is a hearing before the bankruptcy court where the trustee asks you a series of questions under oath as to the bankruptcy papers filed with the court.  Although the hearing is called the Meeting of Creditors, they rarely show up.  With most Chapter 13 bankruptcies the Meeting of Creditors is the only appearance you will have to make.

When is my Chapter 13 bankruptcy over?

Upon successful completion of your Chapter 13 plan (3-5 years) all remaining debts that are eligible for discharge are eliminated.  In order to receive a discharge you must complete a debtor education class from an agency approved by the US Trustee, and you must be current with child support and or alimony.