David Morey 
People often file for bankruptcy when they have debts they cannot repay. It helps them to get a fresh financial start. There are different effective options to file for bankruptcy. Understanding your needs and knowing these options can direct you to the best route to do that.
One of the effective routes to pay off your debts is Chapter 13 bankruptcy. Unlike Chapter 7 bankruptcy, you can save your assets, rationalize all your finances, and make payments within a certain period.
Understanding Chapter 13 repayment rules can help you decide if it’s the right path to file for bankruptcy. Hire an attorney who has expertise in Chapter 13 bankruptcy proceedings.
Who can file for Chapter 13 bankruptcy? And who is not eligible?
- You can file for Chapter 13 bankruptcy only as an individual. Small businesses and companies can’t file for this bankruptcy.
- People with higher income sources have certain restrictions, and only people with regular income are allowed to file.
- People who receive alimony, government benefits, or any other support payment can also file for Chapter 13 bankruptcy when their income is stable.
- If someone’s unsecured debts are more than $465k and secured debts are more than $1.39 million, they’re not eligible to file for this type of bankruptcy.
How does Chapter 13 bankruptcy work?
Let’s see how the process of filing for Chapter 13 bankruptcy works in a few steps:
- The debtor should compile the list of their creditors with details of how much money they owe to each. The debtor should also note information about their income, property ownership, and their monthly expenses.
- After filing for Chapter 13, the debtor will get a court-appointed trustee. This trustee will be the one to distribute the debts to the debtor’s creditors. The debtors and creditors have no direct contact under Chapter 13 rules.
- The debtor has to propose a repayment plan that outlines how they will pay the debts over 3 to 5 years. If the debtor’s income is more than their state’s median income, it’ll be a 5-year plan, and a 3-year plan if lower than the state’s median income.
- The trustee and creditors will question the debtor under oath about their financial situation and proposed plan during a meeting.
- Within 30 days of filing for bankruptcy, the debtor must begin making payments to the creditors.
- After the repayment period, if there are any remaining debts, the court will discharge them, so the debtor is no longer obliged to pay them.
Types of debts in Chapter 13
The types of Chapter 13 debts are grouped into three categories.
Secured debts
Secured debts involve some form of collateral. For example, for a mortgage, the house is the collateral, and the vehicle is for car loans. If the debt is unpaid, the creditor can seize the collateral attached to it.
Priority debts
These payments should be paid in full through the plan because of their legal importance. Alimony, taxes, and alimony are the common priority debts.
Unsecured debts
These are paid by the debtor’s disposable income with no collateral. Credit card balances, past due rents, medical bills, and personal loans are common examples of unsecured debts.
Debts that can’t be discharged under Chapter 13 bankruptcy
The court cannot discharge some types of debts in this type of bankruptcy. They include alimony or child support, debts from DUI-related injuries, federal loans, criminal restitutions, most student loans (unless undue hardship is proven), and mortgages or car loans you’re obliged to pay.
How much in fees would you spend under Chapter 13 bankruptcy?
Filing for Chapter 13 bankruptcy fees involves court filing fees, attorney fees, and trustee fees, which can total around $2800 to $7000, depending on the location. Most of these fees can be incorporated into your own repayment plan.
Key Takeaways
- Only individuals can file for Chapter 13 bankruptcy. Small businesses and companies cannot.
- People with stable income are allowed to file, while people with high unsecured debt limits and secured limits are not eligible.
- The debtor compiles a list of creditors they need to pay with a plan, and then the court hires a trustee for them.
- The amount will be paid by the trustee in installments over 3 to 5 years, depending on the debtor’s median income.
- The court may discharge the remaining debts after the repayment period ends.
- There are three types of debts in Chapter 13 bankruptcy, which are priority, secured, and unsecured.
- Most of your fees in Chapter 13 bankruptcy can be part of the repayment plan.
