A Chapter 13 Bankruptcy is fundamentally different than a Chapter 7 Bankruptcy. In a Chapter 7 case, most of the debtor’s debts are wiped out in exchange for relinquishing any non-exempt property. A Chapter 13 Bankruptcy establishes a payment plan for the debtor. The payment plan requires the debtor to pay all secure debts and any arrearages on secured debts, certain priority debts, and all or a percentage of unsecured debts. Advantages to filing under Chapter 13 include a broader discharge of debts and the ability to stop property foreclosures.

Who Can File Under Chapter 13?

Chapter 13 is not for everybody. Because it requires the debtor to use his or her income to repay some or all debts, a debtor must prove to the Court that he or she can meet the requirements of the payment plan. So if a debtor’s income is too low to meet the requirements, then the Court may not allow the debtor to proceed under Chapter 13. Similarly, there are limits on the amount of debt burden a debtor can bring into a Chapter 13 case. A debtor cannot use Chapter 13 if his or her secured debts exceed $1,010,650 or unsecured exceed $336,900.

The Chapter 13 Process

The process for filing a Chapter 13 Bankruptcy can be quite confusing and complicated. First, the debtor must receive credit counseling from an agency approved by the bankruptcy court. Next, the debtor must file out a number of different forms and schedules, including the all important Chapter 13 Payment Plan.

The filing of the bankruptcy petition must be accompanied by a proposed payment plan over three to five years. The proposed payment plan must provide for the payment of all “priority claims” in full unless the particular priority creditor agrees to a different plan or, if the claim is a domestic support obligation, you agree to contribute all of your disposable income to a five year plan. “Priority claims” are those claims that are given a special status under bankruptcy law, such as taxes and the costs of the bankruptcy proceeding. There are limitations on the ability to modify the payments due on home mortgage loans under Chapter 13.

The bankruptcy trustee appointed by the Bankruptcy Court must review the proposed plan for accuracy and feasibility. The proposed plan is distributed to creditors who have the right to object to the plan if it is unreasonable. If the plan is approved, the debtor keeps all assets during the period of the plan. The debtor makes monthly payments to the bankruptcy trustee who distributes the funds to the creditors according to the plan. If the plan is completed as approved, the debtor is discharged from unpaid debts. If the proposed plan is not completed as approved, several alternatives are open to the debtor depending upon the reasons for the non-completion of the plan.

The Chapter 13 Plan

The Chapter 13 repayment plan is the most important element of a Chapter 13 Bankruptcy. The repayment plan sets forth in detail your income, your expenses, and how you intend to pay each of your debts.

Certain priority debts must be paid in full. These debts include child support, alimony, and certain tax obligations. The plan also must include regular payments on secured debts such as car loans and mortgages, including any arrearages on these loans, i.e., the amount that a debtor has fallen behind in payments.

In sum, the Chapter 13 Plan requires a debtor to set forth his or her anticipated monthly expenses for the next three to five years in order to determine the amount of disposable income the debtor can contribute toward debt repayments. At a minimum, there must be enough disposable income to pay the debtor’s secured and priority debts.

How Long Does a Chapter 13 Plan Last?

A Chapter 13 plan must last for at least three years, unless all debts can be paid off in full in less time. A Chapter 13 plan cannot last for more than five years