Chapter 13 Bankruptcy
In essence, chapter 13 bankruptcy refers to a code implying that an individual starts repaying his debt in a 3 to 5 year plan without forfeiting his assets. As it does not involve asset liquidation, under chapter 13, the debtor can keep his exempt and non-exempt properties. In addition, the repayment plan can last up to 5 years according to the debtor’s income. During this period, the defaulter will only have to make a monthly payment to a bankruptcy trustee who will divide the cash to the lenders.
Who Qualifies for Chapter 13 Bankruptcy?
The individuals that can file for chapter 13 usually have a way-too-high income that forbids them from qualifying for chapter 7. At the same time, debtors that do not want to forfeit their assets are allowed to file for this type of bankruptcy. If the income is slightly below the average salary in the state then the reimbursement plan will be approved for 3 years, whereas if it is way below the median income then it will be extended to 5 years.
Crunching down the numbers, the US law mandates that individuals with an unsecured debt cumulating less than $360,000 and secured debt summing up to less than one million dollars are allowed to apply for chapter 13. For the self-employed, the legislation states that they are also permitted to declare bankruptcy, as long as their business is not incorporated. The circumstances when non-payers are not allowed to file for chapter 13 bankruptcy are as follows:
- Dismissed bankruptcy filing in the past 6 months/180 days
- Failure to appear in court on the settled date
- Voluntary quit of the bankruptcy
- Did not receive credit counseling before filling for insolvency
How the Chapter 13 Bankruptcy Process Goes Into Action
Each debtor’s case is best discussed with a specialized bankruptcy attorney.
However, here is a list of the documents that will need to appear in the petition:
- The statement of financial affairs
- Proof of income for the last 60 days
- The statement showing the monthly income and expenses
- The latest tax return statement
- A list of the liabilities and assets
- A list of the unexpired leases and executor contracts
After filing the petition, debtors are required to present a repayment plan within the next 15 days. A meeting with the creditors and lender will be held in the next 20 to 50 days after the reimbursement plan has been presented to the court. It is important to note that defaulters’ presence at the meeting with the creditors is absolutely necessary, as they need to answer a few questions usually posed by bankruptcy trustee representatives and creditors. On a side note, if the non-payer files for a joint chapter 13 bankruptcy, then the spouse’s presence is mandatory as well.
Meeting with the lenders is crucial as it will determine the bankruptcy judge to modify, deny or approve the repayment plan. In case the reimbursement plan is denied then the trustee will return the already paid fee, excluding the administrative fee until the defaulter presents a viable plan. If it is approved, then the debtor has the obligation on ensuring that the trustee receives the payments and that he distributes the owned cash to the lenders.
In order to get approved, the plan must meet a few criteria. First off, the debtor must show his good will and intention of returning the cash and that it is not an attempt to skip paying some taxes. Secondly, the proposed reimbursement plan must pass the test of the creditors, meaning that the unsecured creditors should receive an amount of cash similar to what they normally get under chapter 7.
However, an approval on the compensation plan means that debtors will still have to pay:
- Student loans
- Criminal fines and traffic tickets
- Court settlements resulting in deaths and injury from DUI
- Alimony and child support
- Debts obtained through fraud
- Certain taxes
The Costs of Chapter 13 Bankruptcy
Given that the defaulter gets to keep and make use of his assets, it is only natural that the court and attorney fees for chapter 13 are a bit more expensive. In November 2011, the total court taxes for filing for chapter 13 were $281, a small part of this sum representing miscellaneous administrative fees. Individuals that cannot afford to pay the entire sum upfront can opt for the four installment payments. However, it is worth pointing out that unless the installment payments are fully paid within 120 days, the bankruptcy petition will be dismissed.
Before hiring an attorney to help out with the chapter 13 insolvency petition, it is advisable that debtors take a look at the United States Bankruptcy Court guidelines for lawyer fees. In general, defaulters will need to take out at least $3500 for a basic case and up to additional $1500 for other circumstances that complicate the liquidation petition.