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How Chapter 13 Bankruptcy Works

Key Takeaways:

  • Chapter 13 bankruptcy allows you to reorganize your debts and keep your property.
  • Chapter 13 bankruptcy requires making regular repayments over three to five years.
  • If you can't make the play payments, your case may be converted to Chapter 7 bankruptcy.

Although only about 30% of individuals who file for bankruptcy file under Chapter 13, there are several reasons why this chapter may be your best option.

Chapter 13 bankruptcy filing is a reorganization of debts under a court-approved repayment plan. Payment plans are set up to last between three and five years, and once this is completed, the remaining debt is usually discharged, with some exceptions.

While each bankruptcy case differs, the following is the Chapter 13 bankruptcy process. If you have questions about which type of bankruptcy is best, ask a bankruptcy lawyer for legal advice.

Filing a Chapter 13 Petition

A Chapter 13 wage earner case begins with filing a petition in bankruptcy court. Along with the petition, you must make information about your financial situation available to the court. You must also provide a certificate of completion of credit counseling, and if a debt repayment plan was written during the counseling session, you will also need to submit this to the court.

Administrative and Filing Fees

A case filing fee and miscellaneous administrative fee are required when filing the petition. As of 2022, the Chapter 13 fees are:

  • Filing fee: $235
  • Administrative fee: $78
  • Total fees: $313

In most cases, payment is required when filing. If you cannot afford the fee, you can request a waiver from the court or ask for a monthly payment plan.

Information Required by the Court

Filing Chapter 13 involves paying back creditors over a period of time. The bankruptcy judge will want to know about your debts and income. This ensures that a repayment plan is reasonable for creditors and debtors. The court will require:

  • A list of all creditors, the types of claims (credit card debt, medical bills, personal loans, car loans, mortgage payments, tax debts, etc.), and what you owe
  • The source, amount, and frequency of your regular income
  • A list of all your property
  • A detailed list of monthly living expenses

If you’re married, you must also provide this information about your spouse. You will also need a copy of your most recent income tax return.

Bankruptcy Trustees

Once you file a Chapter 13 bankruptcy petition, a trustee will be assigned to the case. The appointed trustee is responsible for impartially evaluating your case and collecting your monthly payments and paying creditors.

Automatic Stays

When you file for Chapter 13, an automatic stay is put in place that stops any collection, repossession, or wage garnishment efforts by creditors. This stay generally lasts throughout your repayment plan. This is also a way for people to save your home from foreclosure.

Meeting of Creditors

The trustee will set up a meeting of creditors 21 to 50 days after filing a bankruptcy petition. Creditors and the trustee will ask you questions under oath about your finances and the terms of your repayment plan. If filing with a spouse, you must both attend.

Window for Creditors To File a Proof of Claim

Creditors must file a proof of claim within 90 days of the creditors meeting to be included in the repayment plan. Government entities have 180 days to file a claim.

Chapter 13 Repayment Plan Hearing

You have 14 days from the filing date to provide the court with a repayment plan. It will account for a schedule of fixed payments to your trustee on a regular basis. These payments are usually either biweekly or monthly. The plan will also outline how the trustee will distribute payments to creditors. Within 45 days of the creditors’ meeting, a judge will determine if the plan meets legal requirements and is feasible.

If You Can’t Make Your Payments

The repayment period is three to five years, but a lot can happen during that time. There may be a financial disaster, or you could lose your job. If you have one or more missed payments under the repayment plan, the court can dismiss your case or change to a Chapter 7 liquidation bankruptcy. If you think you might be late on a payment, talk to the trustee to ensure a one-time late payment won’t dismiss your bankruptcy.

Debtor Education Course

You must complete a debtor education course before the end of your bankruptcy. This is required by law to discharge your debts. The class will help you understand what you need to do to get back on your feet after your bankruptcy is over.

Bankruptcy Discharge

At the end of the repayment plan, bankruptcy is over. If you followed the payment plan, any secured and unsecured debts should be discharged. However, secured creditors may still have a property interest in your home, car, or other collateral-backed loan. Generally, you will reaffirm the secured debt so you can keep the property in exchange for continuing to make on-time payments.

Some debts are generally not discharged in bankruptcy. Debts that can’t be discharged include child support and alimony. Student loan debt can be difficult to discharge and is rarely granted in Chapter 13 bankruptcy.

How Can a Bankruptcy Attorney Help?

As you can gather from researching bankruptcy, the federal bankruptcy code can be confusing. An experienced bankruptcy attorney can help you through the bankruptcy process to make sure you get debt relief and a fresh start. Talk to a local bankruptcy lawyer about your legal options.