Chapter 13 bankruptcy helps an individual with a regular income to adjust his/her debts. Under Chapter 13 petition, the debtor is allowed to keep the assets and pay the debts over a period of time. This time period varies from three to five years. For this purpose Chapter 13 bankruptcy is also called a Wage Earner’s plan.
Who Can File
An individual who has an unsecured debt less than $336,900 and secured debt less than $1,010,650 is eligible to file under Chapter 13. These figures keep changing as per the consumer price index. A corporation or partnership cannot file under Chapter 13. If you have had a bankruptcy petition dismissed in the past 180 days, you are not eligible for Chapter 13 relief.
Before filing Chapter 13 petition you also need to seek credit counselling services. You need to do this before filing the petition. Exceptions can be made in an emergency situation. Or if a US trustee determines that there are not that many approved credit counseling agencies to provide the required counseling, you might be exempted from this requirement.
Documents To Submit
Along with your application for Chapter 13 petition, you also need to file the following documents –
• A list of your assets and liabilities
• A document stating your current income and expenditure
• Details of contracts that you have signed and unexpired leases
• A document stating your financial affairs in detail
• A certificate of your credit counseling and a copy of debt repayment plan, if any
• A document detailing any anticipated increase in income or expenditure
Within 20 to 50 days of your filing Chapter 13, the trustee will hold a meeting with your creditors. You are required to attend this meeting. During this meeting you will be placed under oath and asked questions by your creditors and the trustee. Your repayment plan would also be discussed.
Repayment Plan
You are required to start making payments to the trustee as per the repayment plan within 30 days of filing the bankruptcy case. You have to do this, even if the plan has not been approved by the court.
Within 45 days of the first meeting with the creditors, the bankruptcy judge will hold a hearing in which it would be decided if the repayment plan is feasible or not. Your creditors will be given a 25 days’ notice to object to the confirmation.
The repayment plan can either be confirmed or not confirmed. If the court decides to reject the plan, you have the option of filing a modified plan. You can also convert the case to a Chapter 7 bankruptcy. However, your case can be again dismissed and the court can authorize the trustee to keep some of the funds for cost and return the remaining.
Better Option
Overall, Chapter 13 petition is a better option than Chapter 7. First of all it saves your assets from liquidation. If you are currently paying mortgage on your home, you have the opportunity to save your home from foreclosure. Chapter 13 allows you to stop foreclosure proceedings so that over a period of time you are able to catch up with your mortgage payments.
This petition also allows you to reschedule your secured debts, except for the mortgage payments on your home. You can reschedule the payments over a period of three or five years - this definitely helps bring down your monthly payments.
An important point to understand here is that you will receive a discharge only after you have made all the payments as per the repayment plan. In other words, you will not get the discharge immediately. However, while the plan is in effect, you will be protected from lawsuits and other actions that creditors might take to recover their dues.
Those who have secured debts like, car loans and home loans prefer to go with Chapter 3 petition because it allows them to keep their assets. Creditors also prefer this option because more of the debt gets paid under this petition.