Chapter 13 bankruptcy is also known as reorganization bankruptcy. Unlike Chapter 7 bankruptcy, you can possibly keep all of your property, but you also will have to repay all of the debt you owe, or at least most of it, over the course of up to five years.
Some of the debt that must be repaid under a Chapter 13 bankruptcy includes child support, alimony, and some taxes, as well as any money you owe to people who work for you. Car loans and mortgages must also be looked at and arrearages for missed payments must be paid as well if you are looking to keep these assets. Assets like cars and homes can also be surrendered within a Chapter 13 bankruptcy where an arrangement will be made to pay off the creditor after a foreclosure or auction sale.
After paying priority and unsecured debts, any left over disposable income is then put towards the repayment of unsecured debt. These can include credit cards, medical bills and more that are not otherwise secured by collateral.
Since Chapter 13 means that you will use disposable income to pay off the debts that you owe, you will need to prove to the court-appointed trustee that you can afford the entirety of the repayment schedule. If you are not gainfully employed, you probably will not be able to qualify for this type of bankruptcy.
To file for Chapter 13, you must submit paperwork to the court that discloses such things as real estate, personal property, debt and your financial transactions that can date back several years. A repayment plan is due fifteen days after the first papers are filed.
A creditor’s meeting will be set up about a month after the initial filing for Chapter 13 that you, as a debtor, will be required to attend. This meeting will be conducted by the court-appointed trustee who will outline the plan they have proposed and discuss whether it should be changed. A month or so after the creditor’s meeting is held, you will then have a confirmation hearing. It is at this time that a judge will decide whether the most recent plan is feasible or not, and approve it if it is. One of the reasons a plan can be denied by the judge would be that you do not have enough income to make the mandatory payments. However, unless the judge deems you completely unable to meet the federal bankruptcy code requirements, you will be able to change your plan to be resubmitted after thirty days.
Completing a Chapter 13 can be challenging. It only takes one major event such as a layoff or medical emergency to cause you to fall behind on your payment plan. In such a case, where your income has significantly dropped, you may be able to modify your plan, apply for a hardship discharge or even convert your case over to a Chapter 7.
Once Chapter 13 is completed, the remainder of your non-priority unsecured debt will be cancelled. Some debt that remains exceptions to the rule regarding discharge include debts you did not list in your paperwork, civil judgments and taxes for which you have not filed a return.