Chapter 13 Bankruptcy

Chapter 13 is commonly known as a debtor's payment plan because the debtor pays all or a portion of unsecured debts (such as credit cards, medical bills, etc.) over a period of time according to a payment plan approved by the bankruptcy court. Payments on secured debts are also part of the court approved payment plan.

Depending on the debtors income and debt, the payment plan will run for 3 or 5 years. The payment plan will require that the debtor make monthly payments to a bankruptcy trustee and then the trustee will pay the creditors according to the payment plan. After the payment plan is completed, certain debts are discharged, meaning that a debtor does not legally have to pay the debts.

Please note that this information is general information only. Bankruptcy is very detailed and can be complex. Often, there are "exceptions to the rule". For specific information or if you have any questions of any nature whatsoever, talk with a lawyer licensed in your state.

If you are considering filing Chapter 13 bankruptcy, there are three questions to which you need answers:

1. Are you qualified?

First, you must be an individual. Chapter 13 is not for businesses, but individuals can include business debts for which individuals are personally responsible.

Second, you must have regular income and you must have enough disposable income to pay your repayment obligations. Disposable income is the money that you have left after subtracting certain allowed expenses and required payments on secured debts (such as a car loan or mortgage payment).

Third, your secured debts (debts where property [home, car, etc.] is put up as collateral) cannot exceed $922,975, and unsecured debts (such as credit cards, medical bills, etc.) cannot exceed $307,675.

Forth, you must have filed your federal and state income tax returns for the latest four tax years prior to the date of your filing bankruptcy.

2. What property can you keep?

Basically, you keep all of your property. Because your debts are paid from your income, there is no need to sell your property. And because you pay your secure debt payments in the payment plan, you do not lose property (home, car, etc.) that secures the debt(s).

3. What debts can be discharged?

When you complete your Chapter 13 payment plan, your unsecured debts such as credit cards, medical bills, etc. will be discharged and you will not be legally required to pay them.

A Chapter 13 bankruptcy will not eliminate secured debts (home or car loans, etc.), child support, alimony obligations, student loans, most tax debts, debts not listed (but, remember you must list all debts), debts caused by your driving while intoxicated, fines and penalties imposed for violating the law, and other debts that the court determines to be non-dischargeable.

Again, this information is general information and, often, there are "exceptions to the rule." It is best for you to talk with a lawyer licensed in your state, especially if you have any questions of any nature.