What Is A Chapter 13 Bankruptcy?
The Chapter 13 Plan or “Wage Earner Plan” is another type of case you can file in Bankruptcy Court. Under a Chapter 13 plan, you make monthly payments through the Bankruptcy Court trustee to your creditors. The plan usually runs over a three to five-year period and in most circumstances you do not have to pay your unsecured creditors in full to be discharged from the debts. An unsecured creditor is a creditor to whom you have not given any particular collateral or security interest in a specific piece of property. A Chapter 13 plan will usually be approved by the Bankruptcy Judge if the Judge finds you filed the Plan in “good faith” and that you earn enough money each month to make your planned payments after paying your living expenses. Under Chapter 13, you can usually keep both exempt and nonexempt property, including your home, though there are restrictions on keeping unpaid luxury items. Chapter 13 also has other benefits compared to Chapter 7. First, the automatic stay (see page
Chapter 13 bankruptcy results in a plan to repay all or part of your debt, but it is not designed to discharge or eliminate most debts. Chapter 13 is used most often to save a house from a foreclosure sale. Chapter 13 is also useful to eliminate some IRS debt and to establish an affordable plan to pay IRS debt that cannot be eliminated. Chapter 13 bankruptcy is available to debtors with regular income. A business cannot file Chapter 13. In addition, there are upper limits on the amount of the individual’s secured and unsecured debts in Chapter 13 cases.
Chapter 13 of the Bankruptcy Code is known as a “wage earner’s” bankruptcy. It’s available to most individuals, married couples, and small businesses. Although it’s called a wage earner’s bankruptcy the income needn’t be wages. There must however be income in excess of expenses in order to successfully file for Chapter 13. Filing under Chapter 13 allows you to impose a repayment plan, typically about 25 cents on each dollar owed to most of your unsecured creditors (this figure may be more if you want to hold onto more non-exempt assets) while keeping your non-exempt assets. You may also be able to restructure past-due amounts on secured debts, force reasonable interest rates on secured debts, and if for other than a home you owe more than the secured property is worth, you may be able to “strip” off the excess amount owed and pay a fraction of the excess back in the repayment plan as an unsecured debt. Chapter 13 is much more flexible than chapter 7 but more complicated and takes longe
