Chapter 13 bankruptcy allows individuals to keep their property while reorganizing all of their debts to potentially lower their overall monthly payments.
What Is Chapter 13 Bankruptcy?
Unlike with a Chapter 7 bankruptcy, a Chapter 13 requires the individual to pay back at least part of his or her debts. There is a reorganization of the debts so that individual can pay them back over three to five years.
Who Can File for it?
Only individuals who have a steady source of income may file for Chapter 13. If a business wishes to reorganize its debts as an individual, the business can file for Chapter 11 bankruptcy.
Also, Chapter 13 is only available if the individual’s debts do not exceed a certain amount. For secured debt (debt backed by collateral), the limit is about $1.2 million. For unsecured debt, the limit is about $400,000.
How Chapter 13 Bankruptcy Works
The most notable difference between Chapter 13 and Chapter 7 bankruptcy is the repayment plan. Under Chapter 13, there is a reorganization of debts, so they are more easily paid over a certain period, not to exceed five years. If any debts remain after this repayment plan term, most of them do not require repayment. However, this discharge is subject to several conditions:
- First, the individual may not have received an earlier discharge of debts through bankruptcy within a two to four-year period. The exact amount of time depends on the type of bankruptcy previously used.
- Second, the individual must complete a financial management course.
- Third, the individual must have made all post petition domestic support obligation payments.
Is There Anything Else to Know Before Filing?
During the repayment period, which typically lasts three to five years, the individual must provide all disposable income to the bankruptcy trustee. The trustee will then send that money to creditors for repayment. Disposable income is the individual’s total income, minus expenses that are “reasonably necessary” for normal day-to-day living.
Besides completing the repayment plan, another way for the individual to discharge debts in Chapter 13 bankruptcy is to request a hardship discharge. By receiving a hardship discharge, the individual does not need to continue making payments. An individual can get a hardship discharge if they show:
- The inability to continue making payments is the result of circumstances beyond the individual’s control and not the fault of the individual.
- The creditors have already received more money than they would have if the individual filed for Chapter 7 bankruptcy.
- Modification of the repayment plan is not possible.
The above explanation of Chapter 13 bankruptcy just scratches the surface of the overall process.
If you’re seriously considering bankruptcy, please contact me to discuss your options. You can reach me at (678) 888-1778 or through my website.