Under Chapter 13 bankruptcy, the debtor repays creditors with a three- to a five-year repayment plan. If your income is below the median income in your state, you will likely be approved for a three-year repayment plan. While you’re going through Chapter 13 bankruptcy, you make a single monthly payment to your bankruptcy trustee who divides payments among your creditors and sends out the necessary payments.
You might file Chapter 13 bankruptcy if you can't file Chapter 7 bankruptcy because your income is too high or if you have assets that you want to keep. For example, you may be able to save your home from foreclosure by paying your arrearages through a Chapter 13 repayment plan while making your regular monthly mortgage payment.
How to Qualify for Chapter 13 Bankruptcy
U.S. bankruptcy law allows individuals to file Chapter 13 bankruptcy as long as their unsecured debts are less than $419,275 and secured debts are less than $1,257,850 (as of 2021). Self-employed individuals can also file bankruptcy as long as their business is not incorporated.
You cannot file Chapter 13 bankruptcy if you had a bankruptcy dismissed in the previous 180 days because you failed to appear in court or you voluntarily quit bankruptcy because your creditors tried to repossess your property. You must get credit counseling from a court-approved credit counseling agency 180 days before filing bankruptcy.
Necessary Bankruptcy Forms
When you file Chapter 13 bankruptcy, you must also file certain documents along with your bankruptcy petition. This includes:
- A schedule of assets and liabilities
- A schedule of income and expenditures
- A schedule of executory contracts and unexpired leases
- A statement of financial affairs
- Proof of income, if you were paid in the 60 days preceding your bankruptcy filing
- A statement listing your monthly net income and expenses
- Your latest tax return
You can download the necessary bankruptcy forms from the U.S. Courts website found at USCourts.gov.
The Cost of Chapter 13 Bankruptcy
As of Jan. 2021, the total court cost of Chapter 13 bankruptcy is $313. This includes a $235 filing fee and a $78 miscellaneous administrative fee. If you can’t afford to pay the full fee upfront, you can make up to four installment payments. Installment payments must be paid within 120 days of your bankruptcy filing or your bankruptcy case may be dismissed.
Chapter 13 Bankruptcy Process
Once you file your Chapter 13 bankruptcy petition, you have within 14 days to file your repayment plan, if you didn't file it with your petition.
The meeting of the creditors is held between 21 and 50 days after you file Chapter 13 bankruptcy. You are required to attend this meeting to answer questions from your court-appointed trustee and creditors. Both you and your spouse must attend the meeting of the creditors if you filed a joint bankruptcy petition.
A confirmation hearing must be held no more than 45 days after the meeting of the creditors. The bankruptcy judge will confirm, modify, or deny your repayment plan.
Once your plan has been confirmed, your trustee will begin to disburse your payments to your creditors. However, if your plan is not confirmed, the trustee will return to you any payments you’ve made less administrative costs.
After your plan has been confirmed, you must make sure your trustee receives your monthly payments. You can pay the trustee directly or have the payments deducted from your paycheck. If you fail to make your monthly payments, your case could be dismissed or converted to a Chapter 7 bankruptcy case. Failing to pay your child support, alimony, or taxes could also result in a case dismissal.
Chapter 13 Bankruptcy Discharge
Chapter 13 bankruptcy discharge is complicated, but more debts can be discharged in Chapter 13 bankruptcy than in Chapter 7. Your debts are likely to be discharged if you’ve:
- Made all your child support and alimony payments
- Have not received a Chapter 13 discharge in the previous two years or Chapter 7,11, or 12 discharge in the previous four years
- Completed a court-approved financial management course
Bankruptcy discharge relieves you of your obligation to repay the debts listed on your bankruptcy plan. Certain debts can’t be discharged. These include:
- Mortgage payments
- Child support and alimony
- Certain taxes
- Student loans
- Debts resulting from death or injury while you were driving under the influence of drugs or alcohol
- Traffic tickets or criminal fines
- Debts obtained through fraud