Filing Chapter 13 if Ineligible for Chapter 7

A debtor who is ineligible to file a Chapter 7 bankruptcy may file a Chapter 13.  Chapter 13 bankruptcy is a debt reorganization plan which allows a debtor to restructure his debts and repay them over a three to five year period.  Depending on his particular circumstances, a Chapter 13 debtor may be required to pay very little, if any, of his unsecured debt.

How a Chapter 13 Case Works

In order to file a Chapter 13 bankruptcy, a debtor must have sufficient net monthly income to repay his secured debts.  The debtor's net monthly income is determined by subtracting all his monthly expenses from his gross monthly income. 

Along with his bankruptcy petition, the debtor must submit a Chapter 13 plan which sets forth his plans for repaying his debts.  The Chapter 13 plan must provide for payment of one hundred percent of the debtor's net monthly income into the plan for distribution to his secured creditors and to pay the administrative costs of the case.  The debtor's attorney's fees are also paid through the Chapter 13 plan.

If the debtor has unsecured debts, they will be paid on a pro rata basis depending on how much money is left after all secured claims have been paid.  In many instances, unsecured creditors receive only pennies on the dollar.

The Chapter 13 Repayment Plan

The debtor's Chapter 13 plan must specifically detail his plan for repaying his debts.  By law, the plan must set forth how the debtor will pay into the Chapter 13 plan each month, whether those payments will be made weekly, semi-weekly, bi-weekly, or monthly, whether those payments will be made via income deduction order or directly by the debtor, and the length of the plan.  Unless the debtor is self-employed, most jurisdictions require that the plan payments be made via income deduction order.

The Chapter 13 plan must detail how any mortgages, auto loans, and other secured debts, priority unsecured debts, such as taxes and domestic support obligations, and general unsecured debts will be paid.  Additionally, the plan must identify any property (that is the collateral or security for a loan) which the debtor intends to surrender.  The Chapter 13 plan must also set forth how the debtor intends to handle any leases or executory contracts and should include any other special provisions which the debtor deems essential to the successful completion of  his Chapter 13 case.

The Process

Every Chapter 13 debtor who receives a discharge must first attend two hearings:

341 Meeting of Creditors

The 341 Meeting of Creditors usually takes place 30 to 40 days after the bankruptcy petition is filed.  The debtor's attendance at the meeting of creditors is mandatory.  At the meeting of creditor's the trustee and any creditors that choose to appear will question the debtor about his financial situation.  The trustee will identify any objections to confirmation at the end of the hearing.

Confirmation Hearing

The confirmation usually takes place about 30 days after the meeting of creditors.  At the confirmation hearing, the debtor must provide the trustee with evidence that all of the trustee's objections to confirmation have been cured.  If the debtor successfully cures all of the trustee's objections, his plan will be confirmed.  If he doesn't his plan will not be confirmed and his case will be dismissed.

Getting Legal Help

Filing a Chapter 13 bankruptcy is very technical.  To avoid dismissal of your case, you should hire a bankruptcy attorney.  An experienced bankruptcy attorney will represent you in all phases of your case from petition preparation through discharge.