A Chapter 13 Bankruptcy allows a debtor to retain his or her property while paying off a portion or all of his debts over a three-to-five year period. However, not everyone is eligible to file for Chapter 13. Below are factors involved in a Chapter 13 Bankruptcy.
Eligibility
To be eligible for a Chapter 13 bankruptcy, you must show the court that your income is substantial enough to meet the obligations required to repay some or all of your debt. A low or irregular income will bar a filing for Chapter 13. This ineligibility also applies if the total debt is higher than an income, even if the income is substantial. The law states that your secured debts must be less than $1,010,650 and your unsecured debts cannot exceed $336,900. A "secured debt" is a debt that allows a creditor the right to take a specific piece of property (such as a home or car) if the debt is not paid. An "unsecured debt" (such as a medical bill) does not give the creditor this seizure right.
Chapter 13 Process
Before filing for Chapter 13, you are required to receive credit counseling from an agency that has been approved by the United States Trustee's Office. Although the agencies are allowed to charge a fee for their services, they must provide free counseling or counseling at reduced rates if you cannot pay. Additionally, you must pay the current filing fee and file the requested bankruptcy forms.
Repayment Plan
Under the repayment plan, certain debts are labeled "priority debts." These precede other debts and must be paid in full. They include child support payments, alimony, tax obligations, and if you own a business, any wages you owe to your employees. Next in the hierarchy are secured debts such as mortgage and car loan payments. You must make regular payments as well as repay any amounts by which you have fallen behind. After these debts are the unsecured debts such as credit cards and medical bills. Although you do not have to repay unsecured debts in full, any remaining disposable income must go toward their repayment.
How long you have to repay depends on your income and your full debt. If your 6-month average monthly income prior to the filing date is more than the median income for your state, you are required to propose a 5-year plan. However, if your income is lower than the state's median, you are allowed to propose a 3-year plan.
If for some reason you can no longer make payments, you can request that the bankruptcy trustee modify your plan or that the court discharge your debts due to hardship. If the court does not allow this, you may request a dismissal of Chapter 13 or a conversion to Chapter 7.
Once repayment is completed, upon a showing that you have completed a budget counseling course, any dischargeable debts will subsequently be erased. However you must also be current on any alimony or child support payments.
Find a Lawyer
Filing for a Chapter 13 Bankruptcy is a complicated process. You have to meet certain eligibility requirements as well as create a feasible repayment plan. Seek the advice of an experienced attorney to ensure that the bankruptcy proceeds without any unnecessary obstacles.
