One of the types of financial relief that a debtor can file for is a Chapter 13 bankruptcy, which is provided for in Federal code and statue. Filing for a Chapter 13 allows the debtor to create a repayment plan of either three years or five years to pay back specific creditors in accordance to the plan. The repayment plan must adhere to the rules that govern bankruptcy, must be agreed to by all parties involved, and must be overseen by a court-appointed trustee.

When someone files a Chapter 13, it means that they are not able to repay their debt obligations as they originally agreed to do when the debt was taken on. Chapter 13 bankruptcy law allows for these debts to be reorganized for the purpose of repayment. This is different than a Chapter 7 bankruptcy, in which the debts are discharged immediately instead of being set up with a repayment schedule.

In most cases, a Chapter 13 type of bankruptcy has a repayment plan in which the debtor makes monthly, bimonthly or weekly payments to the trustee. The trustee then provides bankruptcy help by taking care of properly dispersing the payments to the creditors. In most instances, the amount of the debt has been restructured and is less than the full amount that is owed to all the creditors.

It is the trustee in a Chapter 13 bankruptcy who is in the position of analyzing the financial situation of the person filing for bankruptcy, so that he can make a reasonable repayment plan and set the dollar amount of the payments that are to be made to the court monthly. The trustee looks at the earning potential of the family, or the individual, and notes any obligations and living expenses that are needed and then decides on the amount the debtor will be able to repay over the course of the repayment plan.

Because a Chapter 13 requires that regularly scheduled payments be made to the court, it is generally recommended only for debtors who have a regular and stable income. For those who are seasonal workers or freelancers, filing Chapter 13 bankruptcy is not the best solution for their financial troubles, in most instances.

When a debtor has agreed to the terms and payment plan of a Chapter 13, it is crucial that they always make their payment to the bankruptcy court on time. If they fail to make their payments as agreed, the entire bankruptcy court record and case can be thrown out. Should this happen, the creditors once again have the right to come after the debtor for the full amount of the debt and the protections under the bankruptcy relief process would not be available to them until they are eligible to file bankruptcy again.

If it occurs that a debtor, who is under a repayment plan through a Chapter 13, is not able to keep up with the payment schedule, then there is the possibility to find bankruptcy relief from the reorganization provisions agreed upon. In the case of a situation that arises, in which the debtor is unable to make the payments to the court as agreed, such as in the case of losing a job or other source of income or if they have an extended illness, they might be able to file a bankruptcy claim form known as a “hardship discharge.”

The first thing that must be looked at before seeking a “hardship discharge” of a Chapter 13 bankruptcy plan, is to evaluate the bankruptcy to see if it can be modified to a Chapter 7. If it can be modified from Chapter 13 to Chapter 7, then the “hardship discharge” would not be allowed. The case and complete situation should be reviewed by an experienced bankruptcy lawyer in order to know what options are available to the debtor. In all cases, because of the additional stress and expense of returning to the court, to once again fill out the Chapter 13 bankruptcy forms and get approval, every attempt should be made to make all payments as agreed to under the repayment plan.

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Chapter 13 bankruptcy law is on occasion called reorganization bankruptcy.  It’s very different than Chapter 7 bankruptcy. In a Chapter 7 bankruptcy most all of your debts are wiped out. But, you must lose any belongings that aren’t exempt from seizure by your creditors. Under Chapter 13 bankruptcy law, you don’t have to forfeit any material 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 hinges on the size of your debts and income.

Eligibility for Chapter 13 Bankruptcy

Chapter 13 bankruptcy isn’t for everyone. Chapter 13 bankruptcy law requires using your income to pay some or all of your debt. So, you’ll have to prove to the court that you’re capable of fulfilling your payment obligations. If your income is irregular or excessively low, the court may not permit you to file under Chapter 13 bankruptcy law.

If your total debt burden is excessively high, you’re likewise unqualified to file under Chapter 13 bankruptcy law. Your secured debts can’t be more than $1,010,650. A “secured debt” is one that gives a creditor the right to take a specified piece of property (like your house or car) if you don’t pay the debt. Your unsecured debts can’t be greater than $336,900. An “unsecured debt” doesn’t permit 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.

Initiating a Chapter 13 Bankruptcy

Prior to filing a Chapter 13 bankruptcy, you must complete credit counseling from an agency accredited 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 provide reduced rate counseling and, in a few cases, free counseling.

Chapter 13 Repayment Plans

The most significant component part of your Chapter 13 bankruptcy paperwork is your repayment plan. It delineates in detail how much money you’ll give to each one of your debts. There’s no recognized form for the plan.  But, most all courts render 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 Need to Pay

Your Chapter 13 plan must pay back particular debts fully. These debts are called “priority debts” because they’re interpreted significant enough to rise to the forefront of the bankruptcy repayment line. Priority debts include child support and alimony, wages you owe to employees, and certain tax duties.  In addition, your plan must include your typical payments on secured debts.

The plan must establish that any income you have left over after getting to these compulsory payments will go to paying off your unsecured debts.  You don’t have to pay these unsecured debts in full.  You merely have to establish that you’re applying any leftover income towards their repayment.

How Long Will Your Repayment Plan Last

The duration of your repayment plan hinges on how much you earn and how big your debts are. If your average 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 have to offer a five-year plan. If your income is smaller than the typical, you may offer a three-year plan.

Regardless of how much you earn, your plan discontinues when you repay each of your debts in full, even if you’ve not reached the three- or five-year mark.

What Takes Place If You Can’t Produce Plan Payments

If you encounter a job loss after taking up a payment plan or detect that you can’t keep up the payments on your Chapter 13 bankruptcy plan, the bankruptcy trustee may alter your plan.  It’s even possible that the court could grant the discharge of your debts on the basis 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 permit you to alter your plan or give you a hardship discharge, you may be able to shift to a Chapter 7 bankruptcy. 

How Does a Chapter 13 Case Conclude

Once you finish your repayment plan, each continuing debt that’s eligible for a discharge is canceled out. But, before you’ll be able to acquire a discharge, you must prove to the court that you’re current on your child support duties and that you’ve completed a budget counseling course with an agency approved by the United States Trustee. This budget counseling course is in addition to the mandatory credit counseling you fulfill before filing for bankruptcy

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