Chapter 13 Bankruptcy

Chapter 13 bankruptcy is a legal process for debtors with overwhelming debts to create a payment plan. Federal Law created this bankruptcy plan for people with significant income and assets who owe money on consumer debts. Chapter 13 helps individuals pay debts while retaining their property and other secured assets by consolidating debt into a monthly payment. The debtor restructures debt into manageable payments by creating a repayment plan and to submit to the courts.

Eligibility

A debtor's income will determine which bankruptcy code they will use. Bankruptcy law states a debtor's gross income must be less than the state median income to file Chapter 7 bankruptcy. A bankruptcy lawyer can help you determine if you pass the means test. Depending on how much disposable income the debtor has, the plan will usually include paying back unsecured debt anywhere from 10%-100% of what is owed by the debtor.

Requirements

To file Chapter 13, you must have a liquidated debt, where the amount you owe is known or capable of easy calculation. You must have regular income, and your total secured and unsecured debts must be less than $2,750,000 (2024) when you file for bankruptcy. Your current monthly income must be sufficient to support the monthly payments. Priority debts such as domestic support obligations and IRS debt must be paid in full.

Chapter 13 vs Chapter 7 Bankruptcy

Filing bankruptcy can significantly reduce your unsecured debt obligations and stop wage garnishments. Chapter 7 bankruptcy allows debtors to walk away from dischargeable debts. Protecting non-exempt assets is far more complex in Chapter 7 bankruptcy, as the trustee will liquidate what they can to repay creditors. Debtors that want to ensure they can keep all of their assets tend to file Chapter 13.

Preparation

Before filing for Chapter 13 bankruptcy, you must gather all necessary financial documents, including income statements and debt records. Profit and Loss records will be required if the debtor operates a business. The debtor must also provide their attorney proof of all income sources such as Pay Stubs, Social Security, Alimony, Rental Income, or Child Support.

The Bankruptcy Filing Process

You must file a petition with the bankruptcy court along with your Chapter 13 monthly payment plan. Once your bankruptcy case is filed and your filing fee is paid, you will be given a date and time for the 341 Meeting and your confirmation hearing.

Zoom Meetings and Hearings

341 Meetings are always on Zoom because New bankruptcy laws require it. The court will review your plan during your hearing and may request modifications before approving it. Once the court approves your payment plan, the trustee will distribute funds to your creditors by paying your priority debts before the unsecured debts.

Creating a Repayment Plan

Your repayment plan will be based on your disposable income less charitable contributions and necessary expenses. Disposable income excludes Child support payments received. Sole proprietors can continue to pay their ordinary operating expenses. Your plan must provide unsecured creditors with an amount equal to what they would have received from a Chapter 7 bankruptcy liquidation. You must notify the trustee if any major changes in your job or marital status that may affect your Chapter 13 occur.

Disposable Income

We determine payments based on your disposable monthly income that you can save at the end of the month. We look at your income and your expenses. You can pay however much is necessary for your mortgage, financed cars, etc. There are limits on spending based on IRS standards, such as food, gas, rent, and other expenses, so it is a budgeting task. You must have enough disposable income to pay something back; otherwise, you cannot be in a 13.

You must put your creditors in a better position than if you had filed a Chapter 7. This means that you have to pay an amount through the plan that creditors would have been able to get paid had you done a liquidation in Chapter 7.

Financial Classes

You must complete the required credit counseling course before filing for Chapter 13 bankruptcy. Additionally, you must complete a debtor education course before receiving a discharge. Debtors who fail to comply with these court orders will have their cases dismissed.

Managing Debt in Chapter 13 Bankruptcy

Chapter 13 bankruptcy helps you repay unsecured debt, such as credit cards, charge cards, and medical bills. A Chapter 13 Lawyer can help you negotiate with creditors to reduce your debt.