Chapter 13 Bankruptcy

Chapter 13 bankruptcy is also called a wage earner’s plan. Under Chapter 13, individual debtors propose a plan for repayment of their debts. If the debtor’s monthly income is less than the median income for his state, he will be allowed a three-year plan; however, if the debtor’s income is over his home state’s median, he will, in most cases, be required to develop a plan of repayment that is five years in term.

ADVANTAGES

Chapter 13 has a variety of advantages over other bankruptcy schema, such as the liquidation offered by a chapter 7 bankruptcy. Most notably, debtors filing a Chapter 13 bankruptcy are able to avoid foreclosure and keep their homes. In addition, chapter 13 allows the qualified debtor to reschedule his secured debts (meaning those backed by collateral.) In addition, debtors under Chapter 13 do not have to interact directly with creditors; instead, a trustee is appointed to that purpose.

ELIGIBILITY

Individuals, even if self-employed, are eligible for Chapter 13 bankruptcy so long as their unsecured debts are less than $360,475 and secured debts are less than approximately $1.08 million. These amounts are based on the consumer price index and are adjusted accordingly.

FILING A CHAPTER 13 BANKRUPTCY

Filing a Chapter 13 bankruptcy begins with the debtor paying a variety of fees and submitting an array of documents to the bankruptcy court; documents required include the following:

- List of assets and liabilities (including property);
- Income statement;
- Statement of financial affairs;
- List of any leases, contracts, or obligations held;
- Certificate of credit counseling;
- Debt repayment plan developed through the credit counseling agency;
- Evidence of monthly income;
- Proof of any expected increases in income;
- Most recent tax return;
- List of any interest the debtor has in federal or state education loans;
- A list of all creditors, including the amount and nature of their claims; and
- A detailed list of the debtor’s monthly expenses

WHAT HAPPENS NEXT

Immediately upon the filing of a Chapter 13 bankruptcy, the debtor is appointed a trustee. This trustee is responsible for the administration of the case. He evaluates the case and is charged with collecting payments from the debtor and disbursing them to his creditors. In this way, a Chapter 13 bankruptcy is very similar to a debt consolidation loan; at no point does the debtor have contact with his creditors. Further, the filing of the Chapter 13 bankruptcy immediately stays any collection action from a creditor.

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