Chapter 13 is also known as reorganization bankruptcy and unlike chapter 7 liquidation bankruptcy, here you don’t have to sell off your non-exempt properties in return for debt relief. In a reorganization bankruptcy, you can keep all of your properties and repay some of the debt following a structured repayment plan showing how you are going to do so from your disposable income.
To file for chapter 13 bankruptcy you will be required to show that you are capable of paying back your debt but if your income is too low or irregular then you will not be qualified for filing under chapter 13 bankruptcy. There also might be a certain debt limit in these cases.
Unsecured debts are debts where your creditors don’t have the right to take your property if you did not repay your debt but secured debts are debts where creditors have the right to take the property that you promised if you don’t repay the debt.
First, you need to take credit counseling classes from an agency approved by the US trustee’s office. The agency is required to provide free or low-cost credit counseling classes. You also need to pay the filing fee to the court for filing your chapter 13 bankruptcy case.
- Repayment plans
This is the most important part where you need to, in detail inform how you will be repaying the debts and particularly to which creditor. There is no official form to be filled but some courts have developed their own to help you better.
How much do you need to pay?
In chapter 13 bankruptcy, there are certain types of debts that are required to be paid in full, these are called priority debts, they come first in line and these include taxes that are due or child support, etc.
Second, in line is your secured debts like home or vehicle loans. If you have fallen behind on any secured debt payments then late payments will also be added to your plan If you have any disposable income left then you need to repay some of your unsecured debts otherwise they are discharged but you need to show good effort to try and repay the unsecured debts.
- Length of repayment plan
As a general rule, if your average monthly income of 6 months before the filing is higher than the median income of the state, then your repayment plan will be for 5 years and if it is lower than the median income of the state then the repayment plan will be of 3 years. If you repay all of your debts before the time then your repayment plan ends early.
- Failing to make a plan payment
If you suddenly lost your job after getting a repayment plan then your bankruptcy trustee can modify your plan, or if you were hospitalized for a long period and cannot make payments the court might discharge your debts altogether.
But if none of it applies to your case then you might have to convert your chapter 13 bankruptcy case into a chapter 7 bankruptcy case. Or altogether get your case dismissed.
The end of your chapter 13 bankruptcy case.
If you have stuck to the plan and have completed it then all of your dischargeable debts will be discharged however you will have to show the court that you are current with all of your non-dischargeable debts and have also done the mandatory budget counseling class.