Chapter 13 Bankruptcy

Chapter 13 bankruptcy, also known as “debt adjustment,” is an alternative to Chapter 7 bankruptcy and follows different rules. Under Chapter 13 of the bankruptcy code, a debtor can structure a method of repaying debts with the court’s blessing. If an individual currently earns a regular wage, Chapter 13 bankruptcy may be a way to repay debts under the court’s terms while keeping the property associated with the debts.

To start a Chapter 13 bankruptcy case with the court, the debtor must file:

  • A list of all creditors, with a description of the type and amount of debt owed to each creditor.
  • An explanation of the source, frequency, and amount of the regular income that the debtor will be use to pay off the debts.
  • A list of all the debtor’s property.
  • A detailed list of the debtor’s living expenses, which generally must include food, utilities, transportation, and taxes.
  • If someone is filing for bankruptcy but his or her spouse is not, the debtor must still list their property, household income, and household expenses so that the court can get an accurate picture of the household’s financial situation and the debtor’s ability to repay his or her debts.

Many people use Chapter 13 as a way to save their homes from foreclosure. As soon as the debtor files for bankruptcy, the foreclosure attempts must stop and the debtor will generally have an opportunity to catch up on past due mortgage payments.

A creditor who claims an unsecured debt, such as a credit card balance, has 90 days to file a claim with the bankruptcy court for the payments owed by the debtor.

Chapter 13 Repayment Plan

Typically, the repayment plan will span three to five years, which gives the debtor some time to earn the money needed to repay creditors. The plan will address three types of debts: priority, secured, and unsecured.

Priority claims are claims that the debtor agrees to pay in full before all others. Debts such as IRS taxes and court costs may fall under priority claims.

Secured claims involve a piece of property such as a vehicle or a home that the creditor can take back if the debtor does not continue to make the payments under the bankruptcy plan.

Unsecured claims are not always paid in full, but Chapter 13 requires that the creditor of an unsecured loan will receive as much money as would have been received if a debtor’s assets had been liquidated under Chapter 7 bankruptcy.

In some cases, the Chapter 13 repayment plan may need some adjustments after the court accepts it. For example, the debtor may become unemployed or underemployed and at some point be unable to repay creditors under the repayment plan. In other cases, some creditors may object to the payment terms under this kind of bankruptcy filing. When relevant, a modification will take place under the guidance of the trustee.

Under this chapter of the U. S. Bankruptcy Code, a debtor who has a regular income is able to consolidate his or her debts and keep property while making regular payments to creditors. Most significantly, Chapter 13 may allow a debtor to keep property that would otherwise be sold to repay his or her debts.