Chapter 13 Bankruptcy is a difficult decision to make, and most people do not even know where to begin when their debt becomes so unmanageable. Having a working knowledge of the process for filing Chapter 13 demystifies a lot of things for those considering it and can help people make more informed choices.
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Chapter 13 bankruptcy allows a person to retain most of their property while paying down their debt over a timeframe of three to five years. This is different from Chapter 7 bankruptcy, in which outstanding debt is discharged and some or all of a debtor’s property is surrendered to a bankruptcy trustee and proceeds of the liquidation are distributed to creditors.
Chapter 13 Bankruptcy Eligibility
The biggest unanswered question for people considering bankruptcy is whether or not they qualify. Because debts will have to be paid back to creditors, a bankruptcy court must determine that the debtor has adequate income to make whatever payment arrangements that are put in place.
To qualify, your income must be over the state median income – in other words, you have the ability to repay your debt. In general:
- Your secured debt must be less than approximately $1 million
- Your unsecured debt must be less than approximately $350,000
- Before filing for protection under Chapter 13 bankruptcy, you must fill out Federal Form 22A, commonly known as the “Means Test.” The results determine whether you qualify for Chapter 13 or Chapter 7 protection. This is not necessary if your debts are primarily business related.
- Your attorney will electronically submit your 22A, your bankruptcy petition, schedules (lists) and statements (answers to specific questions) to the bankruptcy court clerk’s office. You must also file a reorganization plan – a key difference between Chapter 13 and Chapter 7 bankruptcy.
- All petitioners must also complete a Financial Management Course. The fee for this is approximately $300, although it is possible to receive a waiver due to financial hardship.
The repayment schedule for Chapter 13 bankruptcy filings has a large impact on whether or not your filing will be accepted. You will have to fill out all of the required paperwork. Information that goes into these forms includes all your secured and unsecured debts, naming of creditors and exact amounts owed to each, income and tax information and your proposed payments to each creditor. The latter is almost always a reduced monthly payment that will adequately pay off the debt over the extended time frame of three to five years.
There are also prioritized debts that must be paid in full, and these include things like alimony, outstanding taxes and child support. Also, if you own a business and have employees to pay, wages cannot be compromised as part of a Chapter 13 bankruptcy filing.
You must also factor in payments on secured debts like your mortgage and automobile if you intend on retaining this property. Any remaining income that goes beyond your specified living expenses will also need to be accounted for through payments on unsecured debt such as credit cards and other loans.
Chapter 13 bankruptcies take more time to complete than a Chapter 7 filing. It takes at least 36 months (three years) for a person whose income falls below the state median, and at least 60 months (five years) for someone whose income is above the median.
Certain circumstances and hardships can allow the repayment plan to be amended, either temporarily or permanently, such as loss of a job or health problems. These are considered on a case by case basis.
When attempting to file for Chapter 13, let our skillful and experienced legal team guide you through the lengthy process and navigate the complex paperwork. We can represent you and negotiate on your behalf.
Call now for debt relief at 817-737-5436
We offer free consultations
Alice Bower, Attorney at Law, is a personal bankruptcy lawyer practicing in Fort Worth, Arlington, Irving, North Richland Hills, Grapevine, Colleyville, Mansfield, Burleson, Grand Prairie and Bedford.