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Chapter 13 Bankruptcy Info

What Is Chapter 13 Bankruptcy?

Those individuals who took and failed a means test for Chapter 7 bankruptcy or those who intend to repay all or a portion of their debts via the bankruptcy process can consider Chapter 13 bankruptcy. A debtor is responsible for meeting the requirements for Chapter 13 bankruptcy. Some debts are allowed to be discharged in Chapter 7. This is filed in order to sell the non-exempted property to pay off creditors.

However, in Chapter 13 bankruptcy, a debtor maintains their property but also pays back creditors in a 3 to a 5-year repayment plan approved by the court.  A debtor has to comply with the criteria below for Chapter 13.

You Have Not Been Blocked by A Prior Bankruptcy

52701746 – documents for filing bankruptcy chapter 13

If you filed for Chapter 7 bankruptcy within the previous four years or Chapter 13 bankruptcy in the last two years, you are not eligible to receive a Chapter 13 discharge again until that time has passed.

You Are Not a Business Entity

Only individuals and people filing jointly as spouses can file for Chapter bankruptcy. Businesses structured as limited liability companies or corporations are not eligible for a Chapter 13 bankruptcy. Instead, they need to file Chapter 11 bankruptcy.

You Must Have Completed Credit Counseling

You must file a certificate of proof of completion of an approved debt counseling program at least 180 days before filing for Chapter 13 bankruptcy. A copy of any management plan created by that program also needs to be provided to the court.

Your Debts Must Fall Within the Limit

There are limits on a number of debts you have to be approved for Chapter 13 bankruptcy. You must be under $336,900 in unsecured debts. The secured debt limit in $10,10,650. Every 3 years, these debt limits can be adjusted.

A Previous Bankruptcy Case Cannot Be Dismissed Within the Past Six Months

You are ineligible to file for Chapter 13 bankruptcy if:

  • A Chapter 13 or Chapter 7 bankruptcy petition was dismissed during the prior 180 days
  • You asked that the court dismiss the case once a creditor asked the court to remove an automatic stay
  • Or, if you willfully violated a court order

Your Proposed Repayment Plan Needs to Repay All Required Debts

Some debts must be paid in full. These include priority debts such as:

  • non-dischargeable taxes
  • alimony
  • child support or support payments
  • secured debts
  • tax and judicial liens

You Must Have Appropriate Income for the Repayment Plan

To make Chapter 13 work at all, you have to have some form of income. This will help you with your basic life expenses and your debt obligations.

You Must Have Filed Income Tax Returns

You must indicate that you filed state and federal tax returns for the past four years. Seven days prior to the first meeting of creditors, a copy of each should be given to the trustee.

Deciding to File for Bankruptcy

Deciding to file for bankruptcy, whether it is Chapter 7 or Chapter 13, can be a difficult decision. Conducting all of your research and figuring out what is the most appropriate avenue for you is important. Keep in mind, however, a downside of Chapter 13 bankruptcy is that it can take up to five years to pay your debts.

However, while it may take a while to pay off your debts, you will be able to make these payments over time. Additionally, your trustees may negotiate with you on your payment terms. You may be able to reduce your payment amounts, stretch them out or give up a piece of property currently being paid for by you.

After Repayment, Creditors Cannot Demand Full Payment

Once you have completed your repayment plan that was court approved under Chapter 13, your creditors cannot demand a full payment from you. Chapter 13 bankruptcy may stay on your record for a number of years as will repossessions, missed payments for your debts,  and defaults. These can stay on your credit and can be more challenging to explain to a lender in the future than bankruptcy. This is why Chapter 13 being on your record for a couple of years may not be as damaging as you think. Declaring bankruptcy now can enable you to get started on repaying your credit and setting up a better financial future for you and your family members. Bear in mind that no form of bankruptcy will get rid of certain debts including student loan debts but bankruptcy can stop your lenders from taking aggressive collection actions.