In Chapter 13 bankruptcy you pay some or all of your debts over an extended period of time (usually three to five years) through a court approved repayment plan. In return you keep your property. Read on to learn about eligibility for Chapter 13 bankruptcy, how to file a petition, what happens to your property and debts, and more.
(Check out our Chapter 13 Bankruptcy area for everything you want to know about this type of bankruptcy.)
Eligibility for Chapter 13 Bankruptcy
Chapter 13 eligibility depends, in large part, on whether you have enough income to propose a repayment plan that the court will confirm. But there are other requirements as well:
You must be an individual. Businesses cannot file for Chapter 13 relief. Although if you are a sole proprietor or partner, you can file as an individual and include business debts for which you are personally liable.
Your debts must be under a certain amount. Your unsecured debts must be less than $383,175 and your secured debts must be less than $1,149,525.
A prior petition was not dismissed within 180 days. You cannot file Chapter 13 bankruptcy if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to your willful failure to appear before the court or comply with orders of the court or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens.
To learn more, see Eligibility for Chapter 13 Bankruptcy.
Filing for Chapter 13 Bankruptcy
A Chapter 13 bankruptcy case begins by filing a petition with the bankruptcy court and paying a filing fee, which currently is $274. The petition is accompanied by a whole packet of other forms.
To learn more about filing for bankruptcy, including the steps in a Chapter 13 case, completing the forms, and more, see Bankruptcy Filing & Procedure. To learn about specific filing requirements in your state, see the articles in our Bankruptcy in Your State area.
The Chapter 13 Trustee
When you file the petition, the court appoints an impartial trustee to administer the case. The role of the Chapter 13 trustee is to make sure your proposed repayment plan complies with the law, serve as a disbursing agent (by collecting payments from debtors and making distributions to your creditors), and monitor your various duties (such as your duty to file tax returns and annual financial statements).
The Automatic Stay
When you file your Chapter 13 petition, it “automatically stays” most collection actions against you or your property. As long as the stay is in effect, creditors generally cannot initiate or continue any lawsuits, wage garnishment, or even telephone calls demanding payments. (For articles and Q&As on the automatic stay, see Bankruptcy's Automatic Stay.)
The Repayment Plan
Under the Chapter 13 repayment plan, you make monthly (or more frequent) payments to the trustee. The trustee distributes those payments to your creditors, and keeps a commission for her or himself.
In your plan, you must turn over all of your "projected disposable income." In a nutshell, this is the amount left over after paying your expenses. Your plan must also provide that all of your unsecured creditors receive at least what they would have received had you filed for Chapter 7. (To learn the difference between secured and unsecured debts, see Secured vs. Unsecured Debt.) Other creditors must be paid in full (for example, you must pay child support owed to a child or spouse in full over the life of the plan).
Check out our section on The Chapter 13 Repayment Plan to learn more about how it works.
Your Property in Chapter 13 Bankruptcy
You do not have to give up any property in Chapter 13 bankruptcy. However, you must keep current on your mortgage, car loan, and other loan payments -- otherwise you may lose your home to foreclosure or have your car or other property repossessed (the lender can ask the court to lift the automatic stay so that it can do this).
One advantage of a Chapter 13 bankruptcy over Chapter 7 is that you can pay back arrearages through your repayment plan. So, for example, if you are behind in your mortgage payments, you can keep your house if you stay current on future payments and provide for repayment of the arreage in your plan.
(To learn more, see What Happens to Your Property in Chapter 13 Bankrutpcy.)
In order to receive a discharge of your debts at the end of your bankruptcy case, you must make all payments under the plan, remain current on your taxes, and remain current on your child support and alimony obligations.
If your plan paid less than 100% of your unsecured debts, when you finish the plan, those debts will be discharged in full (meaning the remaining balance will be wiped out). Keep in mind, however, that some debts are nondischargeable in Chapter 13 bankruptcy.
The Chapter 13 Bankruptcy Process
There are several steps involved after you file the Chapter 13 bankrutcy petition. To learn about the Chapter 13 bankruptcy process, from start to finish, see The Bankruptcy Process: Chapter 13.