Guide To Filing Chapter 13 Bankruptcy


Losing properties to foreclosure is a common fear of individuals on the verge of bankruptcy. If you are living in the US, you can save your home and protect yourself from your creditors by filing bankruptcy under chapter 13 of the Bankruptcy code.

The aim of chapter 13 of the Bankruptcy Code is to enable debtors with a regular income to clear their debts in installments within three to five years.

Eligibility for chapter 13

Any individual including wage earners, self-employed and individuals running unincorporated business can seek relief under chapter 13 of the Bankruptcy Code. However, to avail the benefits of this bankruptcy chapter, your secured debts should not be more than $1,081,400 and your unsecured debts should be below $360,475. However, the exact figures might vary periodically to take into account the deviations in the consumer price index. Corporate and partnership firm debtors could not file bankruptcy under section 13.

To be eligible for bankruptcy under chapter 13, along with the specified debt load, the individual debtor should satisfy some additional criteria. Your petition would be dismissed if in the last 180 days, before filing the bankruptcy petition, a court had dismissed an earlier bankruptcy petition because you willfully did not appear before the court or failed to comply with the court orders.

You could not file bankruptcy if during the preceding 180 days a bankruptcy petition was dismissed after the creditors moved the bankruptcy court praying for an order of recovery of the mortgaged property. Moreover, within 180 days before filing bankruptcy under any chapter of the Bankruptcy Code, the debtor should have been briefed by a credit-counseling agency approved by the bankruptcy administrator or the US trustee.

While filing bankruptcy, debt repayment plans, which might emerge during credit counseling, should be submitted to the court. However, one can forgo credit counseling during emergencies or if the bankruptcy administrator or the US trustee is of opinion that approved agencies capable of providing the required credit counseling are not available in your neighborhood.

Chapter 13 Bankruptcy Procedure

A petition for bankruptcy under chapter 13 of the Bankruptcy Code should be filed in the bankruptcy court serving the area where you live. Your prayer for bankruptcy should be accompanied by schedules of your total assets, liabilities, income, monthly expenses including, executory contracts that you have not yet executed and unexpired leases such as real estate leases, development contracts, equipment leases and intellectual property licenses, and your financial affairs statement.

In addition, you should also file your credit-counseling certificate, debt management plan that might have developed during credit counseling, statement of monthly income and expected increase in income, interest, if any, on federal or state education loans and copy of the tax return. You can file a joint petition for bankruptcy under chapter 13 along with your spouse or both of you can file individual petitions. In case of individual petitions, you must file the details of your spouse’s assets, liabilities, income and expenses. This would help the court to determine the exact financial condition of your household.

At the time of filing the petition, the case filing and miscellaneous administrative fees should be paid to the bankruptcy court clerk. However, the court might allow you to pay the fees in up to four installments within 120 days after filing the petition. In certain circumstances, the court has the discretion of extending the duration of the installments to 180 days. However, you cannot pay the fees in installments if you are filing the petition jointly with your spouse. If you fail to clear the fees, your bankruptcy petition will be dismissed.

After filing the bankruptcy petition, an impartial trustee is appointed by the court to assess your financial condition, collect payments and disburse it among your creditors. The trustee holds a meeting with the creditors between 20 and 50 days after the debtor files the chapter 13 bankruptcy petition. In areas that do not have adequate bankruptcy administrator or trustee stuff, the scheduled meeting could be held within 60 days after the bankruptcy petition is filed. During the meeting, the trustee and creditors will ask you about your financial condition. In case of joint petition, both you and your spouse should attend the meeting and answer the questions.

The repayment plan should be filed for the approval of the court within 15 days after filing the bankruptcy petition. It will contain the details about your regular biweekly or monthly payments that you will make to the trustee. The trustee would distributes the payments among creditors. By filing bankruptcy under chapter 13 you have the obligation to clear your dues within three to five years. You should start making the payments as stated in the debt repayment plan to the trustee within 30 days after filing the bankruptcy petition.

The payments should be made even if you are waiting for the judgment of the bankruptcy court judge. Within 45 days after the meeting with the trustee, creditors and the debtor, the bankruptcy judge would hold a hearing to decide the feasibility of the debt repayment plan. The court might accept or reject the plan. If the court disapproves your plan, you can resubmit a modified plan.

Benefits Of Chapter 13 Bankruptcy

As soon as you file the bankruptcy petition under chapter 13, a stay provision instantly comes into force that protects you from most of your creditors. As long as the stay is in effect, creditors can’t demand payments from you. They can’t start or continue lawsuits against you. It protects you from wage garnishment or the process of deduction of a part of your salary to recover the debt. The automatic stay provision also prevents the creditors from collecting consumer debts from other co-debtor such as your spouse.

By filing bankruptcy under chapter 13, you can save your home and other properties from foreclosure. The automatic stay provision also stops all foreclosure proceedings. However, you will loose your property if the foreclosure sale was completed by the creditor before the bankruptcy petition was filed.

By rescheduling your secured debts, a debt repayment plan, confirmed by the bankruptcy court, would reduce your overall debt burden. Since the trustee is now responsible for distributing payments to creditors, you do not have to face the wrath of your creditors.

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