Chapter 13 Bankruptcy – An Overview

You must be employed to file a chapter 13. Chapter 13 bankruptcy forces your creditors into a three to five year payment plan. Rarely does a debtor pay back all of their debts. The remaining balances are discharged at the end of the payment plan. A consumer may only file for Chapter 13 if their debts do not exceed certain dollar amounts. For a more detailed description of what chapter 13 can do, visit our chapter 13 FAQs page.

This page has a list of documents needed to file chapter 13 bankruptcy.

 

Calculate Future Income

Individuals who wish to file Chapter 13 must provide documentation of their income from all sources including, commissions, wages, child support, spousal support, social security, workers compensation, unemployment, disability benefits, retirement, and dividends.

 

Develop Repayment Plan

The debtor’s attorney will determine the amount of disposable income available to repay debts by completing a set of means test forms. The amount of the consumer’s income remaining, after normal living expenses are subtracted, is the maximum amount available to repay debts pursuant to a three or five year plan. The payment is determined by the means test form. The payment plan is not dependent on the amount of debt but rather income and expenses.

If the individual’s income is insufficient to repay his debts in full over three to five years, the individual is eligible for a partial payment plan, aka “best efforts” plan. Once the plan is completed, the remaining balances are discharged. The benefit of a repayment plan is that it allows a consumer to make smaller more manageable payments and preventing garnishments.

 

Most Debts are discharged under Chapter 13 bankruptcy

Only those debts provided for under the plan will be discharged. If the debtor left any creditors out of the plan, those debts will remain after the plan is completed. There are other debts which will not be discharged under Chapter 13 bankruptcy and these may include education loans; spousal and child support; drunken driving fines and restitution; criminal fines and restitution; and certain long-term obligations, such as real estate mortgages. An attorney experienced in bankruptcy law can explain which debts are eliminated as a result of a Chapter 13 discharge and which will remain.

 

Result of a Salary Increase during payment plan

It is possible that a client’s income will increase during the repayment period and a determination needs to be made of what to do with the additional income. An attorney will provide guidance on how to proceed so as to best protect your assets.