Chapter 13 bankruptcy

Chapter 13 allows individuals to undergo a financial reorganization supervised by a federal bankruptcy court. The Bankruptcy Code anticipates the goal of Chapter 13 as enabling income-receiving debtors a debtor rehabilitation provided they fulfill a court-approved plan. It is a form of debt consolidation. This is in contrast to the goals of Chapter 7 that offers immediate, complete relief of many oppressive debts.

If filed for Chapter 13, there is the need to have a plan to pay back your creditors over 3 to 5 years. In this period of time, the creditors to whom money is owed cannot attempt to get this money from the bankrupt person except through the bankruptcy court. The bankrupt person gets to keep the property, and the creditors could end up with less money than they are actually owed.

In a Chapter 13 bankruptcy, the bankruptcy court administers a full or partial repayment plan of what the debtor owes. The debtor must first submits a plan to the court; if that plan is approved, the bankruptcy trustee collects monthly payments from the debtor. The trustee is in charge of paying off creditors according to the terms of the approved plan. This repayment plan can take anywhere from 3-5 years, after which-if all payments have been made on schedule according to the plan-any remaining unsecured debt that qualifies for discharge may be discharged.

The debtor's financial characteristics and the type of relief sought plays a tremendous role in the choice of chapters. In some cases the debtor simply cannot file under Chapter 13, as he or she lacks the disposable income necessary to fund a viable Chapter 13 plan.

The advantages of Chapter 13 over Chapter 7 include:
  • the ability to stop foreclosures although a foreclosure would be reinstated upon completion of the bankruptcy
  • to achieve a super discharge of debts of kinds not dischargeable under Chapter 7
  • to value collateral
  • to bifurcate the security interest of creditors in certain property that creditors are either charging too much interest for, or are over-secured, or both, and leading to a cram down modification of the debt
  • to prevent collection activities against non-filing co-signers (co-debtors) during the life of the case.

  • Any individual, even if self-employed or operating an unincorporated business, is eligible for chapter 13 relief as long as the individual's unsecured debts are less than $360,475 and secured debts are less than $1,081,400. These amounts are adjusted periodically to reflect changes in the consumer price index. A corporation or partnership may not be a chapter 13 debtor.

    In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, the debtor must compile the following information:
  • A list of all creditors and the amounts and nature of their claims
  • The source, amount, and frequency of the debtor's income
  • A list of all of the debtor's property
  • A detailed list of the debtor's monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.

  • Married individuals must gather this information for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse is required so that the court, the trustee and creditors can evaluate the household's financial position.

    After the meeting of creditors, the debtor, the chapter 13 trustee, and those creditors who wish to attend will come to court for a hearing on the debtor's chapter 13 repayment plan.