Chapter 13 Bankruptcy Eligibility Essentials

Chapter 13 bankruptcy isn’t for everybody. Chapter 13 bankruptcy law calls for utilizing your income to pay back most or all of your debt. So, you’ll have to certify to the court that you’re capable of fulfilling your payment responsibilities. If your income is sporadic or excessively low, the court might not allow you to file under Chapter 13 bankruptcy law.

If your total debt burden is too high, you’re also ineligible to file under Chapter 13 bankruptcy law. Your secured debts can’t be greater than $1,010,650. A “secured debt” is one that gives a creditor the right to take away a particular piece of property (like your house or auto) if you don’t pay off the debt. Your unsecured debts can’t be more than $336,900. An “unsecured debt” doesn’t allow your creditor the ability to take your properties.  An example of an “unsecured debt” is a credit card or a medical bill.

The eligibility requirements of a Chapter 13 bankruptcy are covered in detail in Chapter 13 Bankruptcy: Keep Your Property & Repay Your Debts Over Time.

Starting a Chapter 13 Bankruptcy

Prior to filing a Chapter 13 bankruptcy, you must complete credit counseling from an agency sanctioned by the United States Trustee’s office. These agencies are permitted to charge a fee for their services.  But, if you can’t afford to pay the fee, they have to provide cut rate counseling and, in a few cases, free counseling.

Chapter 13 Repayment Plans

The most important part of your Chapter 13 bankruptcy paperwork is your repayment plan. It traces in detail how much money you’ll pay to every one of your debts. There’s no authorized form for the plan.  But, nearly all courts render their own forms.  To learn more about Chapter 13 Bankruptcy repayment plans, read Chapter 13 Bankruptcy: Keep Your Property & Repay Your Debts Over Time.

How Much Will You Need to Pay

Your Chapter 13 plan must pay off certain debts fully. These debts are called “priority debts” because they’re believed important enough to leap to the head of the bankruptcy repayment line. Priority debts include child support and alimony, wages you owe to employees, and certain tax obligations.  Additionally, your plan must include your usual payments on secured debts.

The plan must show that any income you have left over after making these expected payments will go toward paying back your unsecured debts.  You don’t have to pay these unsecured debts in full.  You merely have to show that you’re applying any remaining income towards their repayment.

How Long Will You Make Repayment

The duration of your repayment plan turns on how much you earn and how much you owe. If your typical monthly income during the six months prior to the date you filed for bankruptcy is more than the average income for your state, you’ll want to propose a five-year plan. If your income is less than the median, you may offer a three-year plan.

Regardless of how much you earn, your plan terminates when you pay back all of your debts fully, even if you’ve not arrived at the three- or five-year mark.

What Occurs If You Can’t Make Plan Payments

If you sustain a job loss after initiating a payment plan or ascertain that you can’t keep up the payments on your Chapter 13 bankruptcy plan, the bankruptcy trustee may modify your plan.  It’s even feasible that the court could permit the discharge of your debts on the ground of hardship.  Hardship may include the abrupt loss of a job due to a company closing or a severe debilitating sickness.  If the bankruptcy court won’t permit you to alter your plan or permit you a hardship discharge, you may be able to change over to a Chapter 7 bankruptcy. 

How Does a Chapter 13 Case Conclude

After you complete your repayment plan, every leftover debt that’s eligible for a discharge is canceled out. But, before you’ll be able to obtain a discharge, you must demonstrate to the court that you’re current on your child support responsibilities and that you’ve completed a budget counseling course with an agency licensed by the United States Trustee. This budget counseling course is in addition to the required credit counseling you fulfill prior to filing for bankruptcy