Also referred to as “repayment plan bankruptcy” or “wage earner’s plan,” chapter 13 bankruptcy may be available to individuals who demonstrate to the court that they have the capacity to repay some or all of their debt over a reasonable period of time (e.g. 3-5 years).
A chapter 13 bankruptcy filing is complex and there are numerous rules and steps. While it is beyond the scope of this article to provide comprehensive details of the complete process, below we highlight answers to 5 common — and important — questions:
Question: Can anyone file for chapter 13 bankruptcy?
Answer: No. Individuals who are deemed to be carrying too much debt, or who cannot convince the court that they will be able to pay back some or all of their debts per their proposed repayment plan, will not be allowed to file for chapter 13 bankruptcy. The current chapter 13 debt limits are $394,725 in unsecured debt, and $1,184,200 in secured debt. (Note: these limits will adjust per the Bankruptcy Code in April 2019.)
Question: Per a chapter 13 bankruptcy filing, do all creditors eventually receive all of the money owed to them?
Answer: Not necessarily. The court deems some debts as “priority debts,” which means they must be paid back first, and in full. These include alimony, child support, money owed to employees, and some tax obligations. Other debts, such a those owed to banks, car finance companies, credit card merchants and so on, are not usually paid back in full.
Question: How much do debtors have to allocate to their repayment plan on a monthly basis?
Answer: This depends on the financial circumstances of each individual. The court examines all income and expenses — such as mortgage payments, car loan payments, property taxes, etc. — to determine a reasonable and sustainable repayment amount.
Question: Do individuals who file for chapter 13 bankruptcy need to make payments to individual creditors?
Answer: No. The court-appointed bankruptcy trustee receives the monthly payment, and distributes it accordingly to the appropriate creditors.
Question: What happens if due to job loss, illness or other unforeseen event it is no longer possible to meet the monthly obligations of the repayment plan?
Answer: The court recognizes that circumstances beyond an individual’s control can arise that require adjustments to the repayment plan. And in cases of extreme hardship, the court may discharge some debts completely. If an adjustment or request for a partial discharge are not approved, an individual may petition to have their bankruptcy converted to a chapter 7 filing.
To learn more about chapter 13 bankruptcy, contact the Law Offices of Charles Huber today. We have over 30 years of experience on consumer bankruptcy, and will help you make an informed decision on whether this option is in your best long-term financial interest.