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Chapter 13 bankruptcy - How to keep assets and repay debt

Posted on: 09th Nov, 2005 02:27 am
When you're experiencing debt problems and cannot make the payments in full, or as fast as your creditors want, you might want to file Chapter 13 bankruptcy. To learn what it's all about, take a look at the Chapter 13 bankruptcy information below:

Chapter 13 bankruptcy definition

Unlike Chapter 7, Chapter 13 bankruptcy doesn't require you to sell off assets to pay off your debts. Instead, the court appointed trustee negotiates a repayment plan with your creditors that will allow you to repay your debts within 3-5 years. Chapter 13 is essentially a court supervised repayment plan.

When to file Chapter 13

You can file chapter 13 if you're in any of the following situations:
  • Your debts cannot be discharged in Chapter 7.
  • You have property lien exceeding the value of the collateral.
  • You haven't filed taxes for years.
  • You intend to pay off your dues on mortgage/car loan.
  • Your total asset value exceeds the exemptions.
  • Your income is high enough for filing Chapter 7.
  • Most of your assets are non-exempt, and may lose them if you file chapter 7.

How to qualify for Chapter 13

You qualify for Chapter 13 bankruptcy if you satisfy the following:
  • Credit Counseling: You must enroll in a credit counseling course 6 months before filing Chapter 13.

  • Means Test: Your gross monthly income should exceed the State Median Income of your family size. Find out more on how to check whether you qualify for Chapter 7 or 13.

  • Secured and Unsecured debt: In order to qualify for Chapter 13, you must have less than $360,475 in unsecured debts and less than $1,081,400 in secured debts.

  • Previous filing: You can file another Chapter 13 case 2 years after a previous Chapter 13 case has concluded and 4 years after Chapter 7 case has been discharged.

How Chapter 13 Plan works

In addition to the other filing requirements for Chapter 13, you must also provide a proposed repayment plan either at the time of filing or within 15 days of filing. The proposed repayment plan should also be submitted to those creditors whose obligations will be included in the bankruptcy estate.

Your debts must be repaid according to the statutory repayment priority as given below:
  1. The Bankruptcy Court: The first creditor to be repaid in a bankruptcy case is the court. This includes the filing fees and the money owed to the bankruptcy trustee for his/her services in managing the case.

  2. Support obligations: These are obligations that have arisen due to a court ordered obligation, usually spousal or child support back payments.

  3. Back Taxes: These are any amounts you owe to the IRS or state taxing authorities due to unpaid taxes.

  4. Unsecured creditors: The last group to be paid is your unsecured creditors. In some cases you may be obligated to pay interest to your creditors due to the automatic stay.
When creditors can reject your plan
Creditors can reject your Chapter 13 Plan only if:
  • The Plan materially alters the terms of the debt or requires the disposal of a lien before repayment.
  • The amount offered under the repayment plan is less than the creditor would receive under Chapter 7.
  • The creditors have evidence that the Chapter 13 repayment plan was not proposed in good faith.
Most of the creditor's objections to your proposed plan are resolved through negotiation between your creditors and the trustee. If the parties cannot compromise, the judge decides whose interest should control.

How much to pay in Chapter 13 plan
Most of your creditors, especially the court and any judgment debtors (like an ex-spouse), will be entitled to 100% of the amount you owe them. How much your unsecured debtors are entitled to depends on the amount of disposable income you have to put toward the plan every month and how long your plan lasts. The time it takes for you to repay all of your debts under a Chapter 13 bankruptcy plan depends on how much you can afford to pay each month.

When to start payment
You need to make the first payment to the trustee within 30 days of filing Chapter 13. Within 40-45 days of the 341 meeting with your creditors, the bankruptcy trustee and judge will confirm whether or not your plan is acceptable.

Plan modification & Hardship discharge
You can get the trustee's approval to modify the plan if you have severe hardship like a serious illness or you lose your job. However, if you're unable to complete the plan due to reasons for reasons beyond your control, and if modification isn't possible, you can request a Hardship discharge. In order to get a hardship discharge, your creditors must have received as much as they would have if you had filed for Chapter 7.

Pros and Cons of filing Chapter 13

There are several pros and cons to filing for Chapter 13 are:

  • Pay back debts: You repay debts in lower payments.
  • Stops legal action: You are protected from collections, judgments, foreclosure, etc.
  • Retain assets: Real and personal property can be retained.
  • Additional debts discharged: Debts nondischargeable in Chapter 7 can be discharged in Chapter 13. These debts include those for willful and malicious injury to property, debts due to a property settlement in divorce or separation, and those incurred to pay nondischargeable tax liabilities.
  • Protect cosigner: Cosigners on credit cards, payday loans, and other consumer debts are protected under Chapter 13.
  • Tax deduction: You will not have to pay taxes on debt forgiven during bankruptcy.

  • Tax Liens: You will not be able to avoid paying any tax liens during Chapter 13.
  • Dismissal: If you stop making payments under Chapter 13 Plan, the court can dismiss your case or convert it into a Chapter 7 bankruptcy. Your case can also be dismissed if you don't pay post-filing obligations such as alimony, child support, or taxes. Learn about Chapter 13 dismissal.
  • New credit: You cannot take out new credit and incur new debt without court approval.
Chapter 13 bankruptcy helps you restructure your debt payments and become current on your debts. Chapter 13 has less of an impact on your credit score than Chapter 7. However, prior to filing, make sure it is the only way you can get rid of your debts.

Related Forum Discussions:
How much do I have to pay if I file chapter 13 bankruptcy?
Posted on: 09th Nov, 2005 02:42 am
Hi Jaret,

Welcome to the forums.

When you file a bankruptcy you will be charged $189 and chapter 13 trustee will charge a fee of 10 percent on all the payments made under the paln. Plus the fees of attorney of debt relief agency.

Best of luck,
God Bless You.

Posted on: 09th Nov, 2005 02:57 am
Posted on: 09th Jan, 2006 02:40 pm

You can refinance your mortgage after one year of a chapter 13 case provided you have made your plan payments in time. This time frame varies from lenders to lenders.

You are allowed to refinance as long as you are not getting any funds at the closing. Consent from the Trustee may be required.

Posted on: 09th Jan, 2006 02:54 pm

You may be able to get a high rate loan within six months after bankruptcy. It will be better to wait for until you qualify for a FHA loan which you may get after two years.

Posted on: 09th Jan, 2006 03:06 pm
If I have $35,000 debt, and bring home around $3,500 a month of income and choose to file Chapter 13 how much would my monthle payments be and for how long?
Posted on: 26th Aug, 2006 07:31 am
Hi Chris,

Your monthly payments will dpend upon the repayment plan that you will have to submit to the court under the supervision of the trustee appointed by the court. The creditor and the trustee will decide upoon your payments depending upon the debt you will pay for.


Posted on: 27th Aug, 2006 08:04 pm

As Caron has said, the amount of payments you would be required to make on a monthly basis as per your plan would largely depend on the amount you will be able to afford after paying for essential living expenses.

Posted on: 28th Aug, 2006 05:42 pm
can most people quailify for chpt 13 and can a home equity loan be reduced
Posted on: 11th Oct, 2006 02:35 am
Hi Jill,

Whether one qualifies for Chapter 13 will depend on his financial strength to pay off debts. This is better determined by the Means Test. Get more on insight on this issue from:


Posted on: 11th Oct, 2006 03:16 am
Yes, a home equity loan can be reduced in Chapter 13. In fact, this kind of bankruptcy lowers the overall debt level of a debtor and helps him repay his debts by a repayment plan.
Posted on: 11th Oct, 2006 03:30 am
What happens if one files a chapter 13 with more than the permitted secured debt? Can it be converted to a chapter 11? What is the secured credit limit? Is there an asset limit for a chapter 13?
Posted on: 24th Jan, 2009 03:41 pm
Hi jaa,

Whether you qualify for a Chapter 13 or not will depend upon the Means Test. If you have more than permitted secured debts, may be you will not be allowed to file a Chapter 13 bankruptcy. As far as I know, there is as such no asset limit for filing Chapter 13. If your disposable income for 5 years exceeds 25% of the total unsecured debts, then you will not be able to file chapter 7. In such a case, you may have to file Chapter 13. As far as I know, a Chapter 13 bankruptcy can be converted into chapter 11.

Posted on: 25th Jan, 2009 10:55 pm
Question my disposable income for 36 months = $61,155, I had to pay around $40,000 for secure debt to the trustee within the plan. My attorney fee 2500. I am in a 50% to unsecure creditors, where my total unsecure debt before the 50% = $85,000. At 50% of that it will be around $43,000. My question is once I have paid in $61,155 can I be discharge or do I have to pay the 50% to unsecure plus the $40,000 for secure. Please advise.
Posted on: 23rd Feb, 2009 07:27 am
Has the limit for secured debt increased with any of the goverment bailout programs? I live in CA and my debt exceeds the limit.
Posted on: 23rd Feb, 2009 07:55 am
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