Chapter 13 bankruptcy lets you keep your home, car, and other property while settling some of your debts based on a payment plan that you can afford. Sometimes it is called a “reorganization bankruptcy”. A Chapter 13 filing usually does not involve the liquidation (or sale) of your assets and property. Instead, you enter a repayment plan with your creditors. Once you complete your repayment plan, most debts that you didn’t pay are wiped out.
Am I Eligible for Chapter 13?
You must meet specific financial criteria to undergo Chapter 13 bankruptcy. If your debts are too high, or your income is too low or variable, you may be ineligible. As of April 1, 2016, you cannot have more than:
- $1,184,200 in secured debt (such as mortgages and secured car loans), and
- $394,725 in unsecured debt (such as credit card debt and medical bills).
You also must be up-to-date on your income tax filings.
It can be difficult to determine your eligibility for Chapter 13 on your own. An experienced bankruptcy lawyer can help you evaluate your financial situation and determine which debts should (or should not) be included when assessing your eligibility.
Is Chapter 13 Right for Me?
Admittedly, Chapter 13 bankruptcy is not for everyone. You must be financially capable of paying off a portion of your debts under your repayment plan. As long as you have some amount of disposable income (the amount you have after making reasonable payments for housing, food, and other necessities) that you could commit to paying into your plan you could be eligible for a Chapter 13.
There is no reason to be ashamed of a Chapter 13 bankruptcy. Many hard-working, honest people struggle to pay their bills. You may have assumed that after a job loss, medical emergency, or divorce, you would quickly rebound (and pay off your increased credit card bills and personal loans). However, financial recovery is frequently a slow and difficult process. We can help you rebuild. Chapter 13 allows you to repay a portion of what you owe based on what you can AFFORD, not based on what you OWE.
The Chapter 13 Bankruptcy Process
Before you file under Chapter 13, you must take a short credit counseling course. (This can even be done online.) You and your bankruptcy lawyer will organize and analyze your debts and disposable income. It’s important to go over with your bankruptcy attorney all of your debts and assets.
Once you have a complete list of your creditors, debts, sources of income, and other financial information, you will file a packet of forms (your petition) with the federal bankruptcy court. The most important part of your petition is your proposed repayment plan. This plan will explain:
- How much you have the ability to pay, and
- How much of your debts would be paid off during the term of your plan.
A bankruptcy trustee will review your proposed repayment plan, your income statements, and in most cases so long as what you are proposing is fair and reasonable it may be approved. If the court approves your plan, you will repay your debts over time. (A Chapter 13 bankruptcy typically last three to five years.
How Much of My Debt Will I Repay?
It is based solely on what you have the ability to pay. The only debts that must be paid 100 percent include:
- Priority debts, such as past-due alimony, child support, and taxes.
However, you typically will pay less than the full amount of other, unsecured debts (such as credit cards, medical bills, personal loans, and utility bills). Under Chapter 13, these creditors will receive a percentage of their bill, based on your remaining disposable income (after your priority and secured debts are paid).
Work With a Chapter 13 Bankruptcy Lawyer
If you have the ability and discipline needed to complete a Chapter 13 bankruptcy, it can be the first step towards your financial freedom. At Farmer & Wright, we guide our clients through the emotionally difficult and technically challenging process of filing for bankruptcy. We will help you draft a repayment plan that meets your personal needs and long-term goals. Contact us today for a free and confidential consultation.