Chapter 13 bankruptcy is known as a reorganization bankruptcy in which you set up a repayment plan to pay off debts with future income. Unlike a Chapter 7 bankruptcy, however, you are allowed to keep your property. This form of bankruptcy is only designed for individuals and married couples; businesses are not eligible. If you are struggling to pay your debts, our experienced attorneys can help you set up a Chapter 13 repayment plan.
Filing a Chapter 13 bankruptcy
A Chapter 13 bankruptcy starts with the filing of a petition in the local bankruptcy court that includes a proposed repayment plan over a 36-to-60 month period, depending on your income. Like a Chapter 7 bankruptcy, you will be required to pass a means test to determine whether you qualify. In addition to filing the required forms and documents with the court, you must also pay a filing fee.
A trustee will be appointed to review your case, and you will be required to attend a meeting of creditors referred to as a “341 meeting.” Creditors are entitled to appear and ask questions regarding your financial situation and property. In most cases, however, creditors do not attend. The trustee will preside at this meeting and question you about the petition. You must demonstrate that you have enough income to be able to make the payments according to the proposed plan.
After the court approves your repayment plan, you will make monthly payments that will be disbursed to your creditors. You must complete all payments under your plan to receive a discharge of your debts. If you fail to make the payments, your case will be dismissed and creditors can resume collection activities.
Benefits of Chapter 13
A Chapter 13 bankruptcy provides you with a number of benefits. First, it stops collection activities by creditors, as well as garnishments, repossession actions, utility shut-offs and civil lawsuits. Chapter 13 will also stop a foreclosure, allow you to stay in your home and catch up on delinquent payments, provided that you resume making monthly mortgage payments. If you are delinquent with car payments, this type of bankruptcy allows you to repay the balance of the loan over a 3 to 5 year period and may provide for an interest rate reduction. Chapter 13 also enables you to repay tax debts through your plan. In some cases, this filing may eliminate tax debt (for a tax period that is at least 3 years old), as well as penalties and interest on other tax debt.
Limitations of Chapter 13
A discharge in Chapter 13 will not eliminate all debts, including:
- Claims for child support and spousal maintenance (alimony)
- Student loans
- DUI liabilities, criminal fines, and restitution obligations
- Debts not included in the repayment plan
While you are in bankruptcy, you cannot incur new debt or sell or transfer any property without court approval. A Chapter 13 bankruptcy will remain on your credit report for up to 10 years, and this will damage your credit worthiness.
If you need help regaining control of your finances and are considering filing a Chapter 13 petition, our bankruptcy attorneys can guide you through the process and help you establish a well thought-out repayment plan. Call our firm today for a free evaluation of your case.