Chapter 13 Bankruptcy

It is designed to help qualified individuals, or small proprietary business owners (NOT a corporation or partnership), who desire to repay their creditors but are in financial difficulty. Unlike Chapter 7, in which your nonexempt assets would be liquidated and the proceeds distributed to creditors, Chapter 13 Bankruptcy is designed to enable you to keep all or most of your property and to use part of future income over a period of 36 to 60 months to pay creditors as much as they would have received from the liquidation of pre-petition assets.

Chapter 13 offers advantages that Chapter 7 does not. For example, it offers great opportunities to cure (pay off) mortgage arrearages or car payments that are past due over a period of 36 to 60 months, giving you time to catch up and keep your property.

To be clear: Chapter 13 bankruptcy is a debt repayment plan for individuals, but the repayment can be anywhere from liquidation value of your nonexempt assets to 100% of your unsecured debt depending on your situation.

Eligibility: You cannot obtain a discharge in a Chapter 13 case if:

–       You were granted a discharge in a Chapter 7, Chapter 11, or Chapter 12 case during the 4 year period preceding the date of the new petition.

–       You were granted a Chapter 13 discharge during the 2 year period preceding the date of the new petition.

Eligibility for Chapter 13 relief is restricted – only individuals with regular income, with noncontingent, liquidated, unsecured debts of less than $383,175 and noncontingent, liquidated, secured debts of less than $1,149,525 can file for Chapter 13. Noncontigent debts are debts that are fixed and specific at the present time, it does not depend on the occurrence of some other future event (i.e. bona fide disputes) to establish the obligation for payment.

Any individual, even if self-employed or operating an unincorporated business, is eligible for Chapter 13 relief. Eligibility is contingent on the fact that the individual’s unsecured and secured debts are between certain dollar amounts that are adjusted annually by statute. A corporation or partnership may not be a Chapter 13 debtor.

How Chapter 13 Works

A Chapter 13 case begins when a debtor files a petition with the bankruptcy court serving the area where the debtor has a residence. The debtor also shall file the following documents with the court: (1) schedules (lists) of assets and liabilities; (2) a schedule of current income and expenditures; (3) a schedule of unfulfilled contracts and unexpired leases; and (4) a statement of financial affairs.

To complete the petition, statement of financial affairs, and schedules, the debtor needs to compile certain information, including the following:

1. A list of all creditors and the amounts and nature of their claims;
2. The source, amount, and frequency of the debtor’s income;
3. A list of all of the debtor’s property; and
4. A detailed list of the debtor’s monthly living expenses, that is, food, clothing, shelter, utilities, taxes, transportation, medicine, and so on.

Upon the filing of the petition, an impartial trustee is appointed to administer the case. The primary role of the Chapter 13 trustee is to serve as a disbursing agent, collecting payments from debtors due under the plan and, in turn, distributing these payments to creditors.

Furthermore, Chapter 13 contains a special automatic stay provision applicable to creditors. Specifically, after the commencement of a Chapter 13 case, unless the bankruptcy court authorizes otherwise, a creditor may not seek to collect a consumer debt from any individual who is liable with the debtor (that is, a cosigner on a note). Consumer debts are those incurred for consumer, as opposed to business, needs. The debtor must file a plan of repayment with the petition or within 15 days thereafter, unless extended by the court for cause. The Chapter 13 plan must, among other things, provide for the debtor to contribute that portion of his or her future income as is necessary to meet the terms of the pl