Filing for Chapter 13
A Chapter 13 bankruptcy offers individuals who are overwhelmed by debt a path to dealing with it in a structured, manageable way. Rather than selling off their assets in order to pay creditors, Chapter 13 debtors repay their debts in accordance with a repayment plan. That usually involves making monthly payments to the debtor’s creditors. This section offers a guide to filing a Chapter 13 bankruptcy. You’ll find articles covering who can file for Chapter 13, how the filing works, the differences between Chapter 13 and Chapter 7 bankruptcies, how to create a repayment plan, helpful checklists, and much more.
Who Can File for Chapter 13 Bankruptcy?
Business entities cannot file for Chapter 13 bankruptcy, although Chapter 11 bankruptcy may provide similar relief for a business. In order to qualify for a Chapter 13 bankruptcy the debtor must show that they qualify for this form of relief. Applicants must establish that:
- No prior bankruptcy application was dismissed within the previous 180 days;
- They have completed the Credit Counseling Requirement;
- The debts are not too high, less than $336,900 in unsecured debt and less than $1,010,650 in secured debt. These limits are updated periodically to adjust for inflation;
- Tax returns have been filed for the past four years;
- The proposed plan repays all required debts;
- The proposed plan will repay certain amounts to unsecured creditors;
- The applicant has enough income after the deduction of allowable expenses to cover mandatory payments on priority and unsecured creditors.
How Chapter 13 Works
A Chapter 13 bankruptcy begins with the filing of a petition with the bankruptcy court with jurisdiction over the debtor's home. Unless the court orders otherwise the debtor must also provide information about their assets and liabilities, income and expenditures, contracts and leases, financial statements, a certificate of credit counseling, and other financial documentation. In addition to filing these critical documents the applicant must pay filing and administrative fees, though payment by installment is possible with the permission of the court. An impartial trustee is appointed in Chapter 13 cases. This individual evaluates the case and serves as a disbursing agent. They collect payments from the debtor and makes distributions to the creditors.
Filing a Chapter 13 petition automatically "stays" (stops) most collection actions against the debtor and their property. With some limited exceptions this stay will prevent the initiation or continuance of lawsuits, wage garnishment, or harassing phone calls. Foreclosure proceedings are stopped by the automatic stay and the debtor is permitted to bring past-due payments current over a reasonable amount of time. If foreclosure is completed before the debtor files a Chapter 13 petition the stay will not protect the property retroactively. Notice of the stay is sent by the bankruptcy clerk to creditors whose names and addresses are provided by the debtor. This protection extends to co-debtors.
Next, the Chapter 13 trustee calls a meeting of creditors. The debtor is placed under oath and the creditors are permitted to ask questions about their financial affairs and the proposed terms of the plan. Bankruptcy judges are prohibited from attending to ensure their independent judgment. Generally speaking, most creditor meetings result in a resolution and a plan. Creditors can file claims to ensure they receive a portion of any distribution from the bankruptcy.