Chapter 13 Bankruptcy

Chapter 13 Bankruptcy is for wage earners who have the capability of paying back a portion of their unsecured debts with their disposable monthly income. It is often referred to as the wage earners' plan.

Chapter 13 enables individuals with regular income to develop a three or five year plan to repay all or part of their debts. If a debtor's current monthly income is less than the state median for the same size family within the state, the plan will be for three years unless the court approves a longer payment period "for cause." If the debtor's current monthly income is greater than the state median, the plan generally must be for five years. In no case may a plan provide for payments over a period longer than five years.

A Chapter 13 repayment plan is determined by bankruptcy laws that define the amount of disposable monthly income (DMI) allowed a debtor. Certain living expenses may be deducted from the debtor's gross income to determine what their DMI is for making the plan. The debtor must make and submit a qualified plan within a certain time frame to be confirmed by the bankruptcy court.

Once confirmed, the bankruptcy trustee will take the DMI and distribute the monthly amount to qualifying unsecured creditors, and certain secured creditors made part of the plan. The payments will be made in a prioritized order. If an unsecured claim is not paid in full by end of the plan, the remainder of the debt will be discharged (if the debt is not exempt from discharge).

Chapter 13 can be filed by individuals with a regular income (whether self-employed or not and whether operating an unincorporated business or not), as long as the individual's unsecured debts are less than $360,475 and secured debts are less than $1,081,400. These amounts are adjusted periodically to reflect changes in the consumer price index. A corporation or partnership, however, may not be a Chapter 13 debtor.

An individual cannot file Chapter 13 if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor's willful failure to appear before the court or comply with orders of the court or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. Additionally, they may not be allowed to file Chapter 13 if they have not received credit counseling from an approved credit counseling agency within 180 days before filing.