Chapter

A Chapter 13 bankruptcy is designed for individuals with regular income who desire to pay their debts but are currently unable to do so. The purpose of chapter 13 bankruptcy is to enable individual debtors to propose and perform a repayment plan under which creditors are paid over an extended period of time. Under this chapter, debtors are permitted to repay creditors, in full or in part, in installments over a three year to five year period. Under a chapter 13 bankruptcy plan you will not lose your property.

Any individual, even if self-employed or operating an unincorporated business, is eligible for chapter 13 bankruptcy relief as long as the individuals unsecured debts are less than $336,900 and secured debts are less than $1,010,650. An individual cannot file chapter 13 bankruptcy or any other chapter 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.

Chapter 13 affords the debtor a right to cure defaults on long-term home mortgage debts by bringing the payments current over a reasonable period of time. The debtor is permitted to cure a default with respect to a lien on the debtors principal residence up until the completion of a foreclosure sale under state law.

Another benefit of Chapter 13 is that you can "cram down" the repayment of debts for secured property to the current market value. For example, if you owe $20,000 on a car that is worth only $15,000, you would only have to repay $15,000. However, the cram down provision does not apply to long term debts that cannot be paid off during the life of the plan and only applies to debts that are at least 910 days (2 ½ years) old.

The Repayment Plan

The proposed chapter 13 plan usually must commit all projected "disposable income" to repayment of the debts. Disposable income is defined as income not reasonably necessary for the maintenance or support of the debtor or dependents. Within thirty days after the filing of the plan, the debtor must start making payments to the trustee even if the plan has not yet been approved by the court. If the plan is confirmed by the bankruptcy judge, the chapter 13 bankruptcy trustee begins to distribution of the funds received in accordance with the plan.

Once the court confirms the plan, it is the responsibility of the debtor to make the plan succeed. The debtor must make regular payments to the trustee or the bankruptcy may be dismissed. A repayment plan must be at least 36 months, and no longer than 60 months depending on the debtor's income.

Chapter 13 Bankruptcy Discharge

Upon completion of the plan, you are entitled to a discharge of any remaining balances owed on any dischargeable accounts provided for in the plan. Of course, secured debts will not be discharged until they are paid in full if you wish to keep the secured property. A debtor may not receive a discharge in a Chapter 13 case if they received a discharge in a case filed under chapter 7 or 13 during the 2-year period preceding the date of the order for relief in the Chapter 13 case.