Excessive Debt: You may Need to File Chapter 13 Bankruptcy

Chapter 13 bankruptcy is a debt consolidation plan that allows a debtor to repay his debts over a three to five year period.  Chapter 13 bankruptcy is ideal for debtors who have assets they wish to retain or whose assets have lots of equity. 

Who Qualifies for Chapter 13 Debt Relief?

To qualify for Chapter 13 debt relief, a debtor must have regular and stable income sufficient to fund his Chapter 13 plan.  Income can be derived from wages or salary, government benefits, alimony and support payments, or any other income received by the debtor on a regular basis, such as retirement or pension benefits.  Additionally, a Chapter 13 debtor’s liquidated unsecured debts may not exceed $336,900 and his secured debts may not exceed $1,015,650.  

How a Chapter 13 Case Works?

A Chapter 13 case is initiated by filing a Chapter 13 bankruptcy petition and schedules with the bankruptcy court.  At the time the petition is filed, the debtor must pay the filing fee of $284.  Additionally, every Chapter 13 debtor must complete pre-bankruptcy counseling no more than 180 days before filing bankruptcy and must file the certificate of completion simultaneously with the bankruptcy petition. 

All Chapter 13 debtors must also file with the bankruptcy court a Chapter 13 plan which sets forth the debtor’s proposal for how he will repay his debts.  The Chapter 13 plan must allocate 100% of the debtor’s monthly net disposable income into the plan for a three to five year period.  Monthly net disposable income is determined by subtracting from the debtor’s gross monthly income all allowable deductions including: 

• Federal and state taxes;
• Social security taxes;
• Union dues;
• Health Insurance; and
• Other mandatory payroll deductions. 

The difference is known as the net monthly income.  Next, the debtor’s monthly expenses are deducted from his net monthly income.  The difference is known as the monthly net disposable income.  If the net monthly disposable income is zero or a negative number, the debtor’s Chapter 13 plan will not be confirmed. 

What is the Chapter 13 Plan?

The Chapter 13 plan is the debtor’s proposal for how he will repay his debts.  Allowed secured claims and allowed priority claims will be paid before allowed unsecured claims.  Unless a debtor is self-employed, he must make his Chapter 13 plan payments via income deduction; the employer will deduct the plan payments directly from the debtor’s pay check and remit them to the bankruptcy trustee for distribution to the creditors. 

Getting Legal Help

The Chapter 13 plan is at the heart of every Chapter 13 bankruptcy.  Most debtors who represent themselves have no idea how to put together a feasible Chapter 13 plan, often resulting in dismissal of their cases.  To avoid dismissal, it’s best to hire an experienced bankruptcy attorney who will draft your Chapter 13 plan, complete and file the petition and schedules, and represent you in all stages of your Chapter 13 case.