What is Chapter 13 Bankruptcy?

It can be difficult to fully understand the finer details of Chapter 13 bankruptcy, especially when you are attempting to understand how it differs from Chapter 7.

Here is the most important thing you need to know: in Chapter 13 bankruptcy, you are able to keep all your property. However, you are also asked to pay back some or all of your debts, through a repayment plan, over the course of three to five years.

Note: since you will pay back some or all of your debts, many people refer to Chapter 13 bankruptcy as reorganization bankruptcy.

Are you Eligible?

It may sound simple, but Chapter 13 bankruptcy is not the right choice for everyone. Since you use this form of bankruptcy to repay some or all of your debt, it is important that you can prove that you earn enough money to meet your monthly repayment obligation. If you have low or no income, the court may decide that you don’t qualify to file.

Here is something else to consider: your secured debts cannot be higher than $1,149,525 and your unsecured debts cannot exceed $383,175.

What to Expect

If you decide to move forward with Chapter 13 bankruptcy, you must know what the process entails and what is expected of you.

First things first, you are required to receive credit counseling from an approved agency. Until you do this, you are not in position to file for bankruptcy.

Of course, just the same as any type of bankruptcy, you will be asked to pay a filing fee and to complete a variety of documents.

The Repayment Plan

The Chapter 13 bankruptcy repayment plan is not something to ignore. Instead, this is something you will live with for three to five years. For this reason, you want to be comfortable with what is being asked of you.

Your repayment plan describes the process of paying your debts. There is no one size fits all solution, so you never truly know what to expect until you review your situation and begin making your way through the process.

What will you Pay?

Through Chapter 13 bankruptcy, you are required to pay some types of debt in full. These are known as priority debts because they are considered by the court to be more important than others. These types of debts include but are not limited to some types of tax obligations, alimony, child support, and wages you owe an employee (if you are a business owner).

Your Chapter 13 bankruptcy plan must include all regular payments on secured debts. Some of the most common types of secured debt include a mortgage and car loans.

Furthermore, your repayment plan must outline what you will do with any disposable income after making the required payments. In most cases, this money is expected to be used for the repayment of unsecured debts, such as medical bills or credit cards.

Three or Five Years

The length of your repayment plan is based on how much debt you owe and how much money you earn. You will find yourself proposing a plan that lasts either three or five years.

Regardless of the plan length, nothing changes the fact that you need to stay the course from start to finish. If for any reason you are unable to make a payment, maybe due to a job loss, you should consult with your bankruptcy trustee. This person may be able to modify your plan. Additionally, the court could decide to let you discharge your debt as a result of the hardship.

When you fully understand Chapter 13 bankruptcy, it is easier to decide if this the right choice for somebody in your position. This is not a decision to take lightly, as it will impact your finances now and in the future.

If you have questions about Chapter 13 bankruptcy, if you need guidance, you have come to the right place. You can contact us online or via phone at 410-324-2116 to discuss your personal situation and to learn more about the process as a whole.

Our goal is to put you on the right path to a brighter financial future. We have helped many people reach their goals through Chapter 13 bankruptcy. Will you be next?