Chapter 13 Bankruptcy

Some people filing for bankruptcy will qualify only under Chapter 13 of the Federal Bankruptcy Code, or they simply may choose to go this route to protect their property. This type of bankruptcy is often called “Chapter 13″ for short and also “reorganization” bankruptcy, because indeed you are getting your finances more in order by repaying all or part of your debt. In Chapter 13 bankruptcy, filers are responsible for paying back all or a part of their debts over a three to five-year span; notice this is a great difference from Chapter 7 bankruptcy in which debts are generally canceled and filers sometimes must surrender property to help pay creditors. Who can file Chapter 13 bankruptcy? Chapter 13 requires that filers have an income that will be adequate to repay all or some debt; if your income is either sporadic or simply too low, the court may decline your request to file Chapter 13 bankruptcy. You may not file Chapter 13 bankruptcy if you have received a discharge in a Chapter 7 case within the last four years or in a Chapter 13 case within the last two years. Chapter 13 also places limits on the amount of total debt you can have before you become ineligible to file under this section; the limits are separated into secured (those with property attached that the creditor may take to cover the debt) and unsecured (such as credit card bills), and they change over time, so be sure to consult with an experienced bankruptcy attorney regarding your specific situation. How does Chapter 13 bankruptcy work? First of all, before you can file Chapter 13 bankruptcy, you must attend credit counseling with an agency approved by the United States’ Trustee’s Office. The most important feature of a Chapter 13 bankruptcy is the repayment plan. “Priority debts” always must be paid in full, and they include child support, alimony, some taxes, and wages owed to employees. Secured debts such as your mortgage must also be provided for in the repayment plan. Beyond those debts, your unsecured debts such as credit card bills remain; the plan must show that your disposable income would be used to pay down these debts. Note these do not have to be paid in full in order for your to complete your Chapter 13 repayment plan. Will I lose my car/house/other property? With Chapter 13 bankruptcy, no; indeed, one of the main reasons people may opt for Chapter 13 bankruptcy is to keep certain property. What happens after I complete my repayment plan? Once you have completed your payment plan, remaining debts that are eligible for discharge will be canceled. You will have to show the court that have attended another counseling course, this time regarding budgeting, and that you are up-to-date on obligations like child support and/or alimony. What if I can’t complete my repayment plan? If you have trouble meeting your payment obligations, you may be allowed to restructure your repayment plan or the court may even give you a hardship discharge; another option the court has is to allow you to convert your Chapter 13 bankruptcy into a Chapter 7. You can also simply ask the court to dismiss your Chapter 13 bankruptcy, although be aware that you would still owe debts and interest that wasn’t charged while your bankruptcy was pending. Because these are extremely complex issues, you are advised to consult an experienced bankruptcy attorney in your area to discuss your specific circumstances.