Chapter 13 Bankruptcy

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Chapter 13 bankruptcy allows you to keep your property and pay back all or a portion of your debts over a three to five year period. Chapter 13 is also called reorganization.

Eligibility

To be eligible for Chapter 13 bankruptcy, you must have sufficient disposable income. Because Chapter 13 requires you to use your income to repay some or all of your debt, you will be required to prove to the court that you can afford it. If your income is too low or is irregular, you may not be allowed to file for Chapter 13. In addition, your total debt must not be too high. Your secured debts cannot be more than $1,149,525 and your unsecured debts cannot exceed $383,175.

In addition, you will have to submit proof that you filed your federal and state income tax returns for four years prior to filing bankruptcy. You may also be prohibited from filing Chapter 13 bankruptcy if you have previously filed either Chapter 7 or Chapter 13 bankruptcy.

Associated Costs

Debtors are required to complete a credit counseling course from an approved agency before filing for bankruptcy. A list of agencies approved by the US Trustee’s office can be found at www.usdoj.gov/ust (click on “Credit Counseling and Debtor Education”). These courses typically cost from $25-$50 and can generally be completed in person, online, or by telephone. You will also have to pay a filing fee to the bankruptcy court. The current filing fee for Chapter 13 bankruptcy is $281.

The Chapter 13 Repayment Plan

You will need to complete and file numerous forms when you file for Chapter 13 bankruptcy. These forms contain detailed information about your assets, liabilities, income, and other information about your financial circumstances. The most important of these documents is your Chapter 13 repayment plan. The plan describes in detail how you will pay each of your debts and how much of each debt will be repaid.

Certain debts must be paid in full in Chapter 13. These debts are called priority debts and include child support and alimony, student loans, wages you owe to employees, and certain tax obligations. In addition, your plan must include your regular payments on any secured debts, such as a mortgage or car loan. You must also repay any arrearages on these debts.

Any disposable income you have left after making these required payments must go towards paying your unsecured debts like credit cards and medical bills. Unsecured debts generally do not need to be paid in full, as long as you show that you are putting any remaining income toward their repayment. In fact, it is possible in some cases for unsecured creditors to get nothing.
Length of Chapter 13 Plan

The length of your Chapter 13 repayment plan depends on how much income you have and how much debt you owe. If your average monthly income for the six months prior to filing bankruptcy is more than the median income for your state, your plan will be five years. If your income is lower than the median income, you can propose a three year plan. The current median income for Michigan is $45,029 for a single earner, $52,621 for a two person household, $61,715 for a three person household, and $73,864.

If for some reason during the course of your bankruptcy you cannot make your Chapter 13 plan payments – for instance, if you lose your job– you can proposed a modification to your plan. It may also be possible that the court will discharge your debts on the basis of hardship. Other options may be to convert your case to a Chapter 7 bankruptcy or ask the court to dismiss your case.

The Chapter 13 Discharge

Once you complete your Chapter 13 repayment plan, all remaining debts that are eligible for discharge are wiped out. Creditors can no longer take any action to collect these debts. Legally, any discharged debts no longer exist.

Before you receive a discharge, you will have to complete another budget counseling course and file a certification with the court. You are also required to file a certification that you are current on any child support or alimony obligations.