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Chapter 13 Bankruptcy Rules

Key Takeaways:

  • You need to have enough income to qualify for Chapter 13 bankruptcy.
  • The Chapter 13 bankruptcy repayment plan has to be approved by the bankruptcy court.
  • Chapter 13 bankruptcy takes from three to five years to get debt relief.

A Chapter 13 bankruptcy is a personal bankruptcy that allows you to repay debts with a structured payment plan. This type of bankruptcy is useful for people who don’t meet the income requirement for filing a Chapter 7 bankruptcy.

As is the case with any bankruptcy, there are precise rules that apply to Chapter 13 bankruptcies. Bankruptcy laws can be complicated, and you should go into the process prepared to get the most out of bankruptcy. Consult a bankruptcy attorney for legal advice if you have questions about your Chapter 13 plans.

Here are some of the general rules for filing for Chapter 13 reorganization bankruptcy.

Credit Counseling Before Filing

You must go through an approved credit counseling course before filing for Chapter 13 bankruptcy. You must also take a debtor education course before discharged debts are cleared. This course can help prepare you for post-bankruptcy financial management.

Filer Has Sufficient Income

To qualify for Chapter 13 bankruptcy, you must have enough income to pay most of your debts. Chapter 13 is sometimes called wage earner’s bankruptcy. To determine if you qualify, living expenses are deducted from your regular income to see if you have sufficient money left over to pay your monthly bankruptcy plan payments.

All Required Debts Have To Be Included

A Chapter 13 bankruptcy must have certain debts included in the plan. Secured debts that will continue to be paid after the bankruptcy is discharged must be kept current during the bankruptcy. Secured creditors may require you to reaffirm your promise to keep making payments on secured debt, like a mortgage or car loan.

Priority debts, including alimony and child support, must be paid in full. Secured debts like tax liens must also be paid in full within the allotted repayment term.

At the end of the bankruptcy, the remaining unsecured debts are discharged. This includes credit card debt, personal loans, and medical bills. Other debts, like student loans, will likely remain after bankruptcy.

Bankruptcy Court Has To Approve the Repayment Plan

As part of your bankruptcy, a bankruptcy trustee will be appointed to oversee your case. The U.S. trustee will call a meeting of creditors to present the repayment plan. Creditors can question you and object to the repayment terms. Once the court approves the repayment plan at a confirmation hearing, you must follow with regular monthly payments, which the trustee will distribute to the creditors.

Put a Stop to Debt Collectors

When you file the bankruptcy petition and pay the requisite filing fee, the bankruptcy court issues an automatic stay on collection efforts. This means creditors can’t start foreclosure for a past-due home mortgage, wage garnishment, or repossession for an unpaid car loan.

There Is a Repayment Time Limit

All Chapter 13 bankruptcies have time limits. The limit is either three years or five years, depending on the approved plan. By paying the bankruptcy as stated in the approved plan, you can keep your property.

If You Can’t Make the Monthly Payments

If you can no longer follow the debt repayment plan because you lost your job or had some other financial emergency, the bankruptcy court may dismiss your bankruptcy case. The court may also be able to convert the bankruptcy to Chapter 7 liquidation to erase your debts, but you may lose most of your property not subject to exemptions.

What Are the Debt Limits?

There are specific debt limits for people who file Chapter 13 bankruptcy. These limits are adjusted every three years for inflation. The limit for unsecured debt is considerably lower than the limit for secured debts.

Prior Bankruptcy Filings

If you filed a Chapter 7 bankruptcy within the past four years or a Chapter 13 within the past two years, you might not be able to file for Chapter 13 bankruptcy.

Additionally, filing Chapter 13 bankruptcy isn’t possible if a bankruptcy petition was dismissed in the previous 180 days because you failed to appear in court, willfully violated a court order, or requested that the court dismiss the bankruptcy after a creditor requested to lift an automatic stay.

Other Chapter 13 Rules

You must show proof that you filed income tax returns for the past four tax years. You must also go through credit counseling with an approved organization at least 180 days before filing for bankruptcy.

Knowing all the laws of a bankruptcy petition can be difficult. For this reason, if you’re thinking about seeking bankruptcy protection you should contact an experienced bankruptcy lawyer for assistance.

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