If you are facing foreclosure on your home or repossession on your vehicle, then Chapter 13 may be the solution you need to restructure your debt, and put you on the path to financial recovery. Chapter 13 allows individuals to reorganize their debts, and repay them over a 3 to 5 year payment plan. It still allows Debtors to discharge most, if not all, of their unsecured debt. But if you are behind on a house or car, those back payments can be paid over time in Chapter 13.

If your lender is not willing to modify your mortgage payment then a Chapter 13 may allow you to obtain court approval to modify the loan through a Chapter 13 plan. For higher-income debtors who do not qualify for Chapter 7, a Chapter 13 may be your only feasible option. You will only be forced to pay what you can afford according to your monthly budget. The remainder of unsecured debt that does not get paid through the Chapter 13 Plan gets discharged at the end of the case. This means there is still a significant benefit to seeking this type of bankruptcy protection.

What is Chapter 13 Bankruptcy? 

Chapter 13 Bankruptcy allows individuals with a regular income to reorganize their debt through a “Chapter 13 Plan” of repayment in order to repay at least a portion of their debt with their future income.  The plan typically lasts three or five years. The length of your Chapter 13 Plan is dependent on your household income. Payments are made to a Chapter 13 trustee who distributes payments to creditors. Just as in Chapter 7, creditors may not start or continue collection efforts after the petition is filed. 

How does your income determine eligibility?

Individuals filing for bankruptcy must compete a statement of current monthly income and means test calculation, which looks at your last 6 full months of household income. The means test is only applicable to those with primarily consumer debt. The means test analyzes average household monthly gross income to determine eligibility for Chapter 7 bankruptcy proceeding or whether you can repay a portion of your debt to creditors in a Chapter 13. Anyone who is over the means test for income (which is based upon a median income for household size) has a presumption of abuse and is subject to dismissal for Chapter 7. If you do not pass the means test, you may quality for Chapter 13 instead.    

How is your Chapter 13 plan payment determined?

Your Chapter 13 bankruptcy plan payment is determined by the schedule of income and expenses to determine how much disposable income is available to pay creditors.  You must also pay an amount equal to the value of your un-exempt property. 

Most debts are eligible for repayment under Chapter 13 including non-dischargeable debts such as student loans, back taxes, and child support payments. The remaining amount of unsecured debt not paid through the Chapter 13 plan will be discharged at the end of the bankruptcy period (aside from certain non-dischargeable debts). Therefore, there are still significant benefits to seeking Chapter 13 bankruptcy protection.  If you think that Chapter 13 bankruptcy may be a good option for you, please do not hesitate to contact our office and speak with our experienced attorneys.