Why Chapter 13?
Chapter 13 bankruptcy is a repayment plan that protects the debtor from collection action during the case and discharges any unpaid balance of dischargeable debts at the end of the plan.
In Chapter 13, the debtor can impose a debt management plan on creditors, which creditors must accept, stopping the running of interest on credit card debt. The court will enforce the plan against uncooperative creditors. Compare the benefits of 13 with debt management or debt repayment plans.
The discharge in Chapter 13 covers many debts that cannot be discharged in Chapter 7. It is a powerful tool for debtors to regain control of their financial lives and to get a meaningful fresh start.
What's dischargeable in Chapter 7.
Chapter 13 permits the debtor time to pay debts that can't be discharged
in either chapter, like recent taxes or back child support; to cure
defaults on home mortgages; and to eliminate that part of a lien
that is greater than the value of the asset at the beginning of the
case.
More on reducing or eliminating liens
Unlike credit management plans outside of bankruptcy, creditors don't get to choose whether to be bound by the plan. Think of Chapter 13 as a court enforced debt management plan.
Who should consider Chapter 13?
Debtors choose to file a repayment plan under Chapter 13 when
- they owe debts not dischargeable in Chapter 7 ( such as taxes, child support, fraud judgments)
- they have liens that are larger than the value of the assets securing the debt
- they have years of unfiled taxes
- they are behind on car or house payments
- their assets are worth more than the available exemptions
- their income may trigger a substantial abuse objection
How much does the plan have to pay?
The Chapter 13 plan does not have to pay debts in full; it can provide for only fractional payment to unsecured creditors. How much the plan has to pay to creditors is a function of the confirmation tests. Sample Chapter 13 plan.
The Bankruptcy Code does require that priority claims be paid in full. The most common priority claims are recent taxes and family support.
More on creative use of Chapter 13 for tax troubles.
Who is eligible for Chapter 13?
To file Chapter 13, you must be
- an individual (no corporations or partnerships);
- have a regular income greater than your reasonable living expenses;
- have liquidated,
unsecured debts not exceeding $336,900 and secured
debts not exceeding $1,010,650
Telling if a debt is secured.
A liquidated debt is one where the amount the debtor owes is known, or capable of easy calculation. For example, a loan is a liquidated debt; in contrast, the damages owing in an auto accident are usually unliquidated until judgment is entered.
While you can only file Chapter 7 every 8 years, you can file a Chapter 13 bankruptcy even if you got a discharge in a Chapter 7 case filed at least 4 years ago. Under the amended Bankruptcy Code, you can file a second Chapter 13 within two years of filing a previous Chapter 13.
How Chapter 13 works
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12/7/08