Chapter 13 bankruptcy is designed for an individual who has a constant income but is unable to pay off of his or her debts. Through this form of bankruptcy protection, the debtor pays off a portion or all of the debt over a period of three to five years. Chapter 13 is often referred to as a wage earner's bankruptcy plan. When a debtor has an income, but it is under the designated state median, a plan can be extend up to five years. Otherwise, the more common timeframe is three years. During the repayment period, creditors are prohibited from conducting any type of collection effort.
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Chapter 13 bankruptcy has many advantages. Most common is a debtor's ability to save his or her house from foreclosure. Home owners can completely stop the foreclosure processes and possible fix delinquent mortgage payments when filing Chapter 13 bankruptcy. However, the homeowner is still responsible for any mortgage payments due during the time of bankruptcy repayment and must pay on time.
Another major advantage of Chapter 13 is creditors are no longer allowed to contact the debtor. This means any phone calls and mailings will cease during the entire time of the bankruptcy filing and repayment plan. An attorney and trustee will work out repayment details and account adjustments on behalf of the debtor. Chapter 13 also has a provision designed to protect third parties who co-signed for the debtor on consumer debts.
Any individual is eligible for Chapter 13 protection. This includes self-employed individuals and those operating a business that is not incorporated. The main requirement for filing is the filer has less than $336,900 in unsecured debts and $1,010,650, or less in secured debts. Keep in mind that these figures are subject to change based on the consumer price index. A debtor is not eligible to file for protection if he or she has petition the bankruptcy court for protection in the last 180 days.
When a debtor files a bankruptcy petition, it must include:
A schedule of assets and liabilities A schedule of expenses and income A schedule of contracts and leases A financial affairs statement A certificate indicating the debtor has attended credit counseling A copy of any repayment plan that may have been established during counseling A copy of current tax returns A statement of income for the 60 days prior to filing A detailed list of the consumer's living expenses
After all the appropriate paperwork has been filed, a confirmation hearing is set. During the hearing, creditors are invited to attend and pose and questions or concerns to the court and the debtor. A repayment plan is devised and must be submitted to the court within 15 days of filing. The plan is then approved by the court and the filer is ordered to pay the trustee on a monthly basis for up to five years, until the plan is repaid. If the plan is not repaid on time, the trustee can ask the court to dismiss the debtor's bankruptcy protection.
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