Chapter 13 bankruptcy law is occasionally referred to as reorganization bankruptcy.  It’s very different than Chapter 7 bankruptcy. In a Chapter 7 bankruptcy almost all of your debts are cancelled out. But, you must forfeit any belongings that aren’t exempt from seizure by your creditors. Under Chapter 13 bankruptcy law, you don’t have to abandon any personal possessions. But, you’re required to apply your income to pay off most or all of what you owe your creditors. Your payments to creditors are made over time, typically from three to five years. The time frame depends on the size of your debts and income.

Chapter 13 Bankruptcy Eligibility Requirements

Chapter 13 bankruptcy isn’t for everybody. Chapter 13 bankruptcy law involves applying your income to pay back some or all of your debt. So, you’ll have to exhibit to the court that you’re capable of fulfilling your payment responsibilities. If your income is sporadic or too low, the court may not permit you to file under Chapter 13 bankruptcy law.

If your entire debt burden is overly high, you’re likewise ineligible to file under Chapter 13 bankruptcy law. Your secured debts can’t be greater than $1,010,650. A “secured debt” is one that grants a creditor the power to take a specific piece of property (like your home or car) if you don’t pay back the debt. Your unsecured debts can’t be greater than $336,900. An “unsecured debt” doesn’t grant your creditor the power to take your belongings.  An example of an “unsecured debt” is a credit card or a medical bill.

The eligibility requirements of a Chapter 13 bankruptcy are covered in detail in Chapter 13 Bankruptcy: Keep Your Property & Repay Your Debts Over Time.

Opening a Chapter 13 Bankruptcy

Before filing a Chapter 13 bankruptcy, you must complete credit counseling from an agency approved by the United States Trustee’s office. These agencies are allowed to charge a fee for their services.  But, if you can’t afford to pay the fee, they have to supply cut rate counseling and, in a few situations, free counseling.

The Chapter 13 Repayment Plan

The most significant component of your Chapter 13 bankruptcy paperwork is your repayment plan. It describes in detail how much money you’ll give to each one of your debts. There’s no authoritative form for the plan.  But, most all courts supply their own forms.  To learn more about Chapter 13 Bankruptcy repayment plans, read Chapter 13 Bankruptcy: Keep Your Property & Repay Your Debts Over Time.

How Much Will You Have to Pay

Your Chapter 13 plan must pay back specific debts in full. These debts are called “priority debts” because they’re seen significant enough to jump to the forefront of the bankruptcy repayment line. Priority debts include child support and alimony, wages you owe to employees, and certain tax responsibilities.  Additionally, your plan must include your scheduled payments on secured debts.

The plan must indicate that any income you have left over after making these essential payments will go toward paying your unsecured debts.  You don’t have to pay back these unsecured debts fully.  You merely have to indicate that you’re applying any left over income towards their repayment.

How Long Is Your Repayment Plan

The length of your repayment plan depends on how much you earn and how much you owe. If your standard monthly income during the six months prior to the date you filed for bankruptcy is bigger than the average income for your state, you’ll need to propose a five-year plan. If your income is less than the median, you may suggest a three-year plan.

Regardless of how much you make, your plan stops when you pay back each of your debts fully, even if you’ve not progressed to the three- or five-year mark.

What Takes Place If You Can’t Make Plan Payments

If you suffer a job loss after taking up a payment plan or determine that you can’t maintain the payments on your Chapter 13 bankruptcy plan, the bankruptcy trustee may modify your plan.  It’s even possible that the court could allow the discharge of your debts on the ground of hardship.  Hardship may include the abrupt loss of a job due to a company shutting down or a severe debilitating sickness.  If the bankruptcy court won’t allow you to modify your plan or permit you a hardship discharge, you may be able to change over to a Chapter 7 bankruptcy. 

How Does a Chapter 13 Case Conclude

After you complete your repayment plan, each continuing debt that’s eligible for a discharge will be canceled out. But, before you’ll be able to obtain a discharge, you must demonstrate to the court that you’re current on your child support obligations and that you’ve finished a budget counseling course with an agency authorized by the United States Trustee. This budget counseling course is in addition to the mandatory credit counseling you go through prior to filing for bankruptcy

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