A Comprehensive Guide to Chapter 13 Bankruptcy

Understanding the Different Steps in a Chapter 13 Bankruptcy Case

Chapter 13 bankruptcy, also known as a wage earner’s plan or reorganization bankruptcy, provides an alternative to Chapter 7 bankruptcy, which liquidates most of your debts. Chapter 13 bankruptcy allows you to utilize your income to repay a portion or all of your debts over a period ranging from three to five years, contingent upon your debt size and income level.

Chapter 13 bankruptcy isn’t suitable for everyone. It necessitates showing the court that you possess the financial means to adhere to your payment obligations. If your income is inconsistent or insufficient, or if your financial obligations are excessively high—you may not qualify for Chapter 13. There are separate caps on secured debts and unsecured debts, and these terms define whether a creditor has a right to take specific property if you fail to pay the debt.

Navigating the Chapter 13 Bankruptcy Process

To begin a Chapter 13 case, you must first obtain credit counseling from an approved agency by the United States Trustee’s office (details can be found at www.usdoj.gov/ust/ by clicking “Credit Counseling and Debtor Education”). Should financial constraints be an issue, agencies must provide counseling without charge or at a subsidized rate.

After completing counseling and receiving a certificate, you will need to file this with the bankruptcy court alongside a detailed packet of your financial information. This includes property, income, debts, expenses, last year’s federal tax return, and proof of tax filing for the previous four years. Moreover, you must submit a Chapter 13 repayment plan and pay the filing fee.

The Chapter 13 Repayment Plan

The repayment plan is a critical document in your Chapter 13 bankruptcy proceedings. It outlines precisely how you will reimburse each creditor. While no official form exists, some courts provide their own versions.

Fulfilling Payments on the Repayment Plan

Payments under your Chapter 13 repayment plan must commence no later than 30 days after filing with the bankruptcy court, typically remitted to a bankruptcy trustee who oversees your case. For individuals with steady employment, the court may mandate wage deductions to ensure timeliness and full receipt of payments.

Mandatory Payment Requirements

The repayment plan must prioritize certain debts, such as child support, employee wages, and certain tax obligations, which are considered “priority debts.” Additional mandatory payments include secured debts like mortgages or car loans, as well as addressing any payment arrearages. Your plan must also demonstrate that any surplus income will go toward your unsecured debts, like credit card or medical bills—you are not obligated to repay these in full, but you must commit any remaining disposable income toward them.

Duration of the Repayment Plan

The duration of your Chapter 13 plan is dependent on your earnings relative to the state median income, affecting whether your plan will span three years or five (median income figures are available on the United States Trustee’s website, www.usdoj.gov/ust/, under “Means Testing Information”). Completing debt repayment ahead of schedule can terminate the plan earlier.

Addressing Payment Difficulties

Should challenges arise that impede your ability to meet plan payments—such as a job loss—the bankruptcy trustee may adjust your plan by granting a delay, reducing monthly payments, or prolonging the repayment period. If circumstances warrant, the court might allow a hardship discharge, but this is contingent on uncontrollable situations, like illness or unexpected local economic downturns.

If plan modification or hardship discharge is not feasible, it may be possible to convert to a Chapter 7 bankruptcy, unless you’ve been discharged under Chapter 7 in the last eight years or Chapter 13 in the past six. Alternatively, you can request your Chapter 13 case to be dismissed—you’d still owe the remaining debts minus any payments made, but creditors could also reintroduce interest charges withheld during your bankruptcy case.

Conclusion of a Chapter 13 Case

Upon fulfilling your repayment plan, all qualifying debts will be discharged. However, you must demonstrate to the court that you are caught up on child support or alimony and have completed a budget counseling course with a Trustee-approved agency, in addition to the credit counseling undertaken before filing for bankruptcy.

For additional information on navigating Chapter 13 bankruptcy or to schedule a consultation, reach out to James H. Wilson at 804.740.6464. Our legal team is prepared to guide you every step of the way towards a fresh financial start.