Thousands of Americans today have steady monthly income and are able to pay their daily living expenses, but can’t keep up with the scheduled payments on their debts. Many of us are facing foreclosures, but have significant equity in our homes that we would like to keep.  One of possible solutions for these problems may be filing bankruptcy under Chapter 13 of the Unites States Bankruptcy Code.  This type of bankruptcy allows individuals with regular earnings to keep their property and repay all or part of their debts by making one affordable monthly payment over time.

Chapter 13 bankruptcy, sometimes called a “ wage earners plan”, enables debtors to make installments to the creditors over three to five years according to a repayment plan. If the debtor’s current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period “for cause.” On the other hand, if the person’s current monthly income is greater than the applicable state median, the plan generally must be for five years. In no case may a plan provide for payments over a period longer than five years.

The best part of the Chapter 13 bankruptcy procedure is that during the repayment time the law forbids creditors from starting or continuing collection efforts. The payments are made to the court appointed trustee, who distributes the funds among creditors according to the court-approved plan. Therefore, during the repayment period you don’t have any direct contact with the creditors. In addition, filing of Chapter 13 bankruptcy stops the process of foreclosure or repossession in its tracks, thus allowing you breathing room to catch up on the delinquent accounts and keep all of your property.

Unlike Chapter 7 bankruptcy, Chapter 13 does not require passing of a complicated means test to qualify. Instead, Chapter 13 considers your ability to repay your total secured debts as main qualification. To be eligible for Chapter 13 relief, an individual:

  1. Must have a regular source of income that is expected to be consistent over the next three to five years.
  2. Must have less than $360,475 of unsecured debts and less than $1,081,400 of secured debts. These amounts are adjusted periodically to reflect the changes in consumer price index.

Please note, that even individuals who are self-employed or ones operating unincorporated businesses are eligible to file for Chapter 13 bankruptcy as long as their income is regular and consistent. Income is the largest consideration for eligibility in a Chapter 13 bankruptcy and Wischmeyer Law Office can generally work with your income to show that it is “regular and consistent” even if you question whether that is true.

A Chapter 13 case begins by filing a petition and other required documentation (schedule of assets and debts, schedule of income and expenses, etc.) with the Bankruptcy Court serving the area where the debtor resides. Please note, however, that although the schedules are usually filed along with the petition, there are certain emergency situations (for instance, if the petitioner is filing bankruptcy in order to stop foreclosure or repossession), when they may be filed separately so that the petition can be filed immediately, without waiting to collect the required information and documentation for the schedules.

After the Chapter 13 bankruptcy petition and accompanying documents are filed, the court appoints an impartial trustee to oversee and administer the case. Next, follows a meeting with the creditors and a court hearing to determine debtor’s Chapter 13 repayment plan.  Such plan is usually prepared and submitted to court for approval by the debtor’s attorney. Typically, it will require payment for any past due balances on secured property that you want to keep, such as a missed mortgage or a car loan payment, equivalent to the value of non-exempt assets.

The trustee assigned by the Bankruptcy Court will take these payments and pay a pro-rata amount to each of your creditors during the three to five year repayment plan. Afterwards, and presuming that you made all of the payments according to plan, you would receive a discharge of any remaining balances owed to the creditors. If, for example, your plan called for paying the unsecured creditors 20% of the amount you owe them, then after the 3-5 year plan is completed, you would be discharged permanently from ever having to pay the remaining 80% owed to those credit card companies.

Chapter 13 bankruptcy is a complicated proceeding and any mistakes could potentially cost you the protection of the automatic stay or prevent a Chapter 13 bankruptcy repayment plan from being approved. Chapter 13 bankruptcy attorney at the Wischmeyer Law Office are dedicated to guiding you through the process and ensuring that all filing requirements and deadlines are met. Our Chapter 13 attorney will appear with you in court to get your plan approved and will monitor your case throughout your plan until completion. Thus, if you are considering or are in the process of filing Chapter 13 bankruptcy, please contact the Wischmeyer Law Office by email at jason@wischmeyerlaw.com by phone at (317) 429-0210.