Chapter 13 is available to an individual debtor only. It is not available to a partnership or corporate debtor. The debtor can be in business, but they need not to be. It requires that your secured debts be less than close to 1.2 million dollars and your unsecured debts be less than close to $400,000, with adjustments for inflation. The debtor must have a regular, steady income to be eligible for Chapter 13. The income is put into a Chapter 13 Plan, and creditors are paid out of the proceeds of the Chapter 13 Plan by the Chapter 13 Trustee that is appointed by the Court. The money is paid out of your paycheck if you are employed; if you are self-employed, you will be responsible for making payments yourself. The first payment is due 10 days after the Chapter 13 bankruptcy is filed. The Chapter 13 Trustee administrates the plan and pays creditors according to the plan’s features. The plan typically runs 3 to 5 years, and cannot run any longer than 5 years. The plan requires that the debtor have disposable income, after all normal living expenses have been paid.
Most secured debts are paid in full through the plan, with interest on the portion of their debt that is secured. Those secured debts that cannot be paid through the time frame of the plan can be paid according to their normal payment schedule since the debt such as a 30 year mortgage cannot be paid through a 5 year plan. The monthly payment amount on secured debts can be modified through the plan as well as can the interest rate. The plan can be used as a planning tool; collateral can be returned to the creditor and the remainder of the debt can be considered an unsecured debt, burdensome leases or contracts can be rejected and treated as unsecured debt and otherwise. You must pay all your disposable income into the plan and show that the creditors are no worse off in a Chapter 13 than a Chapter 7 by paying an amount equal to any equity you have in items after your exemption.
After secured debts are paid, unsecured debts are paid with any disposable income left over. Unsecured debts can be paid 20 cents on the dollar, 10 cents on the dollar, as long as the debtor is providing all of their disposable income and plan is proposed in a good faith. You can retain all the things you wish to retain in a Chapter 13 bankruptcy if your Chapter 13 Plan is feasible and if you pay equal to your equity in your assets. It’s not up to the creditor whether they will allow you to retain it. You can use the plan to allow you to come current on some debts you are delinquent on over life of the plan. Chapter 13 is commonly known as the “save the house” bankruptcy.
Chapter 7 typically takes 6 months to be completed and Chapter 13 typically takes 3 to 5 years to be completed. All of your property and income is subject to the jurisdiction of Bankruptcy Court during the time you are in bankruptcy, and you must get Court authorization for purchases, sales or incurring debt for major items greater than $1,000.00 in Chapter 13. Chapter 7 Bankruptcy can be filed normally only 8 years and stays on the credit record of the individual for 10 years. Chapter 13 can be filed more frequently. The eligibility for Chapter 7 or 13 also may be based on your income and the IRS expense tables, and other factors which need to be discussed with your attorney. Your actual income and expenses will probably determine how much you’ll need to pay through your chapter 13 Plan.