Chapter 13 FAQs
In a Chapter 13 case, you use your income to pay some or all of what you owe to your creditors over three to five years, depending on your income and the amount and kind of debt. In return, you get to keep your property.
Unlike a Chapter 7 bankruptcy, where your debts are simply cancelled and you may lose some property in a liquidation, a Chapter 13 proposes a routine payment that fits within your regular monthly budget.
Anyone can file a Chapter 13 case so long as their secured debts (e.g., mortgages, liens, etc.) are less than $1,149,525 and their unsecured debts are less than $383,175. Filers can only receive a Chapter 13 discharge, however, if they have not been granted discharge in a Chapter 7 case filed within the previous 4 years or a in Chapter 13 case filed within the previous 2 years.
The Chapter 13 Plan provides for payment of fixed amounts to the Trustee on a regular basis, usually bi-weekly or monthly. The Trustee then takes your payment and distributes the funds to creditors according to the terms of the plan, which often pays creditors less than they are owed.
Priority creditors (e.g., taxes, child support, etc.) must generally be paid in full in a Chapter 13 Plan. If you have collateralized property, like a house or a car, that you want to keep, you can also expect to pay those debts in full. Finally, unsecured creditors (e.g., credit cards, medical bills, etc.) receive a share of the remaining amount of your monthly payment.
It depends on a number of factors including your income, monthly payment, type of debt, and the amount owing. Still, you can expect a Chapter 13 case to take no less than three (3) years and as long as five (5) years to complete.
Generally, no. However, your Chapter 13 Plan will only gain approval if your personal expenses are reasonable. This means that those who have a $1,000 monthly car payment can expect to be required to downgrade their transportation to something more reasonably priced as part of the Chapter 13 process.
As you might imagine, any bankruptcy filing will weigh down on a credit score. A Chapter 13 case filing will be reported in your credit history for eight (8) years, regardless of whether or not you are granted a discharge of your debts.
You will be required to appear at a Meeting of Creditors, outside of court. Filers are also routinely required to appear in Court for a hearing to approve the Chapter 13 Plan. Any other court appearances are generally less common.
A debt consolidation service is a business working to position you to negotiate your debts down. A Chapter 13 bankruptcy is a judicial process overseen by the Courts and a court-appointed trustee to reduce your debts to a manageable level.
Objections to Chapter 13 Plans are common. Your plan must be reasonable and proposed in good faith. Remember that just because an item is in the budget, it is not automatically reasonable and you may be required to document the expense or eliminate it. You can expect that it will take work to overcome objections before the Court will approve the Plan, but a competent attorney will be able to steer the plan to approval or “confirmation.”
If you do not propose a Chapter 13 Plan the Court can confirm by the deadline, you may qualify to convert or change the case to one under Chapter 7. Otherwise, the case will be dismissed.
You will have a very limited opportunity to amend the plan and catch up the payments. If you cannot catch up the payments, you may qualify to convert the case to one under Chapter 7. Otherwise, the case will be dismissed.
Yes, as long as you meet the debt limits for a Chapter 13 case. Chapter 13 cases for business owners are more complicated, but because there is no risk of liquidation, Chapter 13 often ends up being the preferred chapter for business owners.
Creditors not listed in your schedules or who fail to receive notice in the bankruptcy case will not be discharged. But also, student loans, domestic support obligations, criminal penalties, government fines, many taxes, and DUI driving debts are among the debts that will not be discharged in your Chapter 13 bankruptcy case.