Chapter 13 bankruptcy is known as a reorganization bankruptcy. It’s typically used by debtors whose income exceeds the limits of Chapter 7 or who has assets from being sold by the trustee if they file a chapter 7. Chapter 13 bankruptcy has its own set of rules and eligibility requirements.
Chapter 13 is sometimes called a “repayment debt relief” plan. Chapter 13 can be used to stop foreclosures, garnishments and repossessions immediately without a creditor’s consent, and it allows you to catch up defaults over a period of years through a court supervised plan. As soon as debtor files the appropriate paperwork and pays the filing fee, an automatic stay takes effect. The automatic stay prohibits creditors from further attempts to collect a debt. This means that any lawsuit proceedings must cease, a creditor may not report the debt to credit reporting agencies, and the debtor’s property and income are safe from repossession or garnishment.
In a Chapter 13 bankruptcy, you use your income to pay some or all of what you owe to your creditors over time. The time period generally is based on a 36 or 60 month repayment schedule. The repayment period will be determined based on the size of your household, debts, and income.
Chapter 13 Repayment Plan
The most important part of a Chapter 13 bankruptcy is the repayment plan, which describes in detail how (and how much) you will pay for each of your debts. In order for your bankruptcy to go forward, the court must approve your repayment plan and also determine that you have enough income to meet your payment obligations under the plan.
In a Chapter 13 plan must pay certain debts in full. These debts are called “priority debts,”. Priority debts include child support and alimony, wages you owe to employees, and certain tax obligations. In addition, your plan must include your regular payments on secured debts, such as a car loan or mortgage, as well as repayment of any arrearages on the debts (the amount by which you’ve fallen behind in your payments).
The plan must show that any disposable income you have left after making these required payments will go towards repaying your unsecured debts, such as credit card or medical bills. You don’t have to repay these debts in full. You just have to show that you are putting any remaining income towards their repayment.
Chapter 13 Trustee
Similar to the Chapter 7 trustee, the Chapter 13 trustee is an important part of the chapter 13 filing by the debtor. The trustee will review the proposed payment plan of the debtor, and has the ability to object and challenge the plan in bankruptcy court if he or she believes that it is improper. If the Chapter 13 plan is confirmed by the bankruptcy court, the trustee acts as an intermediary between the debtor and creditors receiving payments. Specifically, the debtor makes payments each month to the trustee. The trustee then divides up the payment, as established in the Chapter 13 plan, and issues payments to the creditors.
Restrictions During Chapter 13 Bankruptcy
Chapter 13 bankruptcy carries with it a few restrictions which are not present in Chapter 7 bankruptcy. Obviously, a debtor must continue to make the monthly payment. The debtor must not incur substantial debt without court approval, such as a car loan. The debtor must also maintain insurance on any collateral, such as a car that is collateral for a car loan.
Chapter 13 bankruptcy isn’t for everyone. Because Chapter 13 requires you to use your income to repay some or all of your debt, you’ll have to prove to the court that you can afford to meet your payment obligations. If your income is irregular or too low, the court might not allow you to file for Chapter 13.
Contact my office today at 404-913-1529 to see if you qualify for a chapter 13 bankruptcy filing.