A chapter 13 bankruptcy is also called a wage earner’s plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. If the debtor’s current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period “for cause.” (1) If the debtor’s current monthly income is greater than the applicable state median, the plan generally must be for five years. In no case may a plan provide for payments over a period longer than five years. 11 U.S.C. §1322(d). During this time the law forbids creditors from starting or continuing collection efforts.
Advantages of Chapter 13
Chapter 13 offers individuals a number of advantages over liquidation under chapter 7. Perhaps most significantly, chapter 13 offers individuals an opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time. Nevertheless, they must still make all mortgage payments that come due during the chapter 13 plan on time. Another advantage of chapter 13 is that it allows individuals to reschedule secured debts (other than a mortgage for their primary residence) and extend them over the life of the chapter 13 plan. Doing this may lower the payments. Chapter 13 also has a special provision that protects third parties who are liable with the debtor on “consumer debts.” This provision may protect co-signers. Finally, chapter 13 acts like a consolidation loan under which the individual makes the plan payments to a chapter 13 trustee who then distributes payments to creditors. Individuals will have no direct contact with creditors while under chapter 13 protection.
- You own a home and are behind on your mortgage
- Your debts may be re-negotiated for better terms
- Past Due balances are paid off over 3 – 5 years
- You keep your home, car, etc. as long as you continue your regular payments
A Chapter 13 plan is a document filed with or shortly after a debtor’s Chapter 13 bankruptcy petition.
The plan details the treatment of debts, liens, and the secured status of assets and liabilities owned or owed by the debtor in regard to his bankruptcy petition. In order for plans to take effect, it must meet a number of requirements. These are specified in § 1325 and include:
* providing that unsecured creditors will receive at least as much through the chapter 13 plan as they would in a chapter 7 liquidation
* either not be objected to, repay all creditors in full, or commit all of the debtor’s disposable income to the Chapter 13 plan for at least three years (or five years for a debtor who makes an above median income)
For more information about bankruptcy, click on Bankruptcy Basics.
David Judah specializes in bankruptcy law, giving you access to the most qualified bankruptcy related legal assistance available. The Bankruptcy Reform Act of 2005 made sweeping changes to filing requirements and eligibility standards, making it harder to qualify and more difficult to file.
Now, more than ever before, finding an attorney that knows all the ins and outs of the bankruptcy system is vital to winning your case. You should only rely on the advice of a quality bankruptcy attorney, like David Judah.