An Overview of Chapter 13 Bankruptcy
The basic steps involved in a typical Chapter 13 case.
Chapter 13 bankruptcy, sometimes called the wage earner's plan, or reorganization bankruptcy, is quite different from Chapter 7 bankruptcy (which wipes out most of your debts). In a Chapter 13 bankruptcy, you use your income to pay some or all of what you owe to your creditors over time -- anywhere from three to five years, depending on the size of your debts and income.
Chapter 13 bankruptcy isn't for everyone. Because Chapter 13 requires you to use your income to repay some or all of your debt, you'll have to prove to the court that you can afford to meet all of your payment obligations. If your income is irregular or too low, the court might not allow you to file for Chapter 13.
If your total debt burden is too high, you are also ineligible. Your secured debts cannot exceed $922,975, and your unsecured debts cannot be more than $307,675. A "secured debt" is one that gives a creditor the right to take a specific item of property (such as your house or car) if you don't pay the debt. An "unsecured debt" (such as a credit card or medical bill) doesn't give the creditor this right.
The Chapter 13 Process
Before you can file for bankruptcy, you must receive credit counseling from an agency approved by the United States Trustee's office. (For a list of approved agencies, go to the Trustee's website at www.usdoj.gov/ust/, and click "Credit Counseling and Debtor Education.") These agencies are allowed to charge a fee for their services, but they must provide counseling free or at reduced rates if you cannot afford to pay.
Once you've completed your counseling, the credit counseling agency will give you a certificate showing that you met the requirement. To begin your bankruptcy case, you must file this certificate with the bankruptcy court, along with a packet of forms listing what you own, earn, owe, and spend. You'll also need to submit your federal tax return for the previous year and proof that you filed federal and state tax returns for the previous four years. In addition, you must file a Chapter 13 repayment plan showing how you will pay off your debt. And you'll have to pay the filing fee, which is currently $189.
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