Chapter 13

Chapter 13 bankruptcy is a legal process that allows individuals with regular income to reorganize their debts and develop a repayment plan to pay off creditors over a period of three to five years. Chapter 13 Bankruptcy is an alternative for consumers who fail the means test (a code-calculated income-to-debt ratio test) or with significant assets that they don’t want to lose in liquidation. Unlike Chapter 7 bankruptcy, which involves liquidating assets to repay creditors, Chapter 13 allows debtors to retain their property while making structured payments to creditors

Can I file Chapter 13 Bankruptcy?

To be eligible for Chapter 13 bankruptcy, individuals must meet specific criteria outlined in the United States Bankruptcy Code (11.USC.13). Here are the primary eligibility requirements:

1. Regular Income: Chapter 13 bankruptcy is designed for individuals with regular income. You must have enough income to fund a repayment plan that covers your essential living expenses and allows you to make payments to creditors.
2. Debt Limits: There are debt limits for Chapter 13 bankruptcy. Under Chapter 13, the debt limitations for bankruptcy cases filed between April 1, 2022, and March 31, 2025 are $1,395,875 of secured debt (such as home mortgages or car loans) and $465,275 of unsecured debt (such as credit cards, medical bills, phone bills, etc.).  However, the Bankruptcy Threshold Adjustment and Technical Corrections act of 2022 temporarily increased the debt total to $2.7M; this will revert to the standard limits in July 2024 unless it is extended*.  (*Please note: This information is valid as of May 29, 2024)
3. Disposable Income: You must have sufficient disposable income to fund a repayment plan. Disposable income is calculated by subtracting allowable expenses (such as housing, utilities, food, transportation, and other necessary expenses) from your total income.
4. Completing Credit Counseling: Before filing for Chapter 13 bankruptcy, individuals are required to undergo credit counseling from an approved agency within 180 days prior to filing.
5. Filing History: Individuals are not eligible for Chapter 13 bankruptcy if they have received a discharge in a Chapter 7 bankruptcy case within the past four years or in a previous Chapter 13 case within the past two years.
6. Tax Filings: You must have filed your income tax returns for the past four years before filing for Chapter 13 bankruptcy. Failure to file tax returns can affect your eligibility.
7. Secured Debt Payments: If you have secured debts, such as a mortgage or car loan, you must be current on payments or have a plan to catch up on missed payments through the Chapter 13 repayment plan.
8. Intent to Repay: You must have a genuine intention to repay your debts and comply with the terms of the Chapter 13 repayment plan.

What is the Chapter 13 Bankruptcy process?

Before filing for Chapter 13 bankruptcy, debtors are required to undergo credit counseling from an approved agency. Additionally, completion of a financial management course is typically required before receiving a discharge.

Here’s a breakdown of how the Chapter 13 bankruptcy process typically works:

1. Filing the Petition: The Chapter 13 bankruptcy process starts by filing a petition with the bankruptcy court in your jurisdiction. This petition includes detailed information about your financial situation, assets, liabilities, income, and expenses.
2. Development of the Repayment Plan: As part of the bankruptcy petition, you and your attorney will propose a repayment plan outlining how you intend to repay your debts over the next three to five years. The plan must allocate your disposable income toward repaying creditors, with secured creditors generally receiving full payment and unsecured creditors receiving a percentage of what they are owed.
3. Automatic Stay: Once you file a Chapter 13 petition, an automatic stay goes into effect. This halts most collection actions by creditors, including lawsuits, wage garnishments, foreclosure proceedings, and harassment.
4. Confirmation of Plan: The bankruptcy court reviews your proposed repayment plan to ensure it complies with bankruptcy laws and is feasible given your financial circumstances. If the court approves the plan, it becomes binding on both you and your creditors.
5. Payment to Trustee: You make regular payments to a court-appointed trustee, who will distribute the funds to your creditors according to the terms of the confirmed repayment plan.
6. Completion of Plan: You continue making payments to the trustee for the duration of the repayment plan, typically three to five years. Once you have completed all payments according to the plan, remaining eligible debts are discharged by the court, meaning you are no longer legally obligated to repay those debts.

Chapter 13 bankruptcy provides a structured way for individuals to repay their debts while still retaining their property and assets. Experienced Brevard County Bankruptcy attorney John Russo will help you understand the implications and determine if Chapter 13 bankruptcy is the right option for your financial situation and guide you through every step of the bankruptcy process.    

Disclaimer: The law firm contacted through this site is a debt relief agency and helps people and businesses of Florida file for bankruptcy under the U.S. Bankruptcy Code.