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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:
Hi Deadlift,

In my opinion, you should first contact your lender and inform them about your hardship. Check out with your lender whether or not he is ready to give you a new payment plan. If not, then I think you'll have to get the bankruptcy filing dismissed and refile it. However, contact your bankruptcy attorney once and take his opinion in this regard.
Posted on: 20th Aug, 2009 08:42 pm
Does a Chapter 13 repayment plan stop credit card interest from accruing?
Posted on: 23rd Aug, 2009 04:38 pm
Hi Duckie,

As far as I know, if you file Chapter 13 bankruptcy and if it's accepted by the bankruptcy court, then your creditor cannot sue you for the credit card debts. Moreover, as it's an unsecured debt, it would be discharged.

Posted on: 23rd Aug, 2009 08:19 pm
I was told by my lawyer that when you file and lets say your debt is 50 thousand and aftr the 5 years plan you could only repay with the payment plan 30 thousand that after that time they right off the balance due
Posted on: 03rd Sep, 2009 11:58 am
Hi marluci,

In Chapter 13 bankruptcy, you will get a payment plan depending upon your financial situation. Your lender will judge your financial situation first and then give you the repayment plan. As per that payment plan, you would have to clear off the mortgage dues. But I don't think your balance would be forgiven by the lender.
Posted on: 03rd Sep, 2009 08:37 pm
If you had to make a "guesstiment" what do you think it would roughly cost to do all of this on roughly $35000 debt?
Posted on: 04th Sep, 2009 09:42 am
I think it would be difficult to make a "guesstiment". You can contact a bankruptcy attorney and he would help you in this regard.
Posted on: 07th Sep, 2009 03:50 am
My husband and I are considering filing for bankruptcy. My question is this..... I am a co-signer on my mother's bank accounts. I need to be reassured that my bankruptcy will in no way hurt my mother, nor would she even be contacted about my personal situation, even though my name is connected to her money market and checking accounts.
Thank you.
Posted on: 14th Sep, 2009 02:15 pm
Hi anon,

As you and your husband are filing bankruptcy, your mother will not be affected due to this. Her credit will not get ruined as she is not jointly filing the bankruptcy.

Posted on: 15th Sep, 2009 12:02 am
in P.a. They say you have to make under 41,000 to declare chapter7.
I do not have enough money to Pay chapter 13.I do not own anything.
I owe approx.50,000 on unsecured debt. What would my monthly payment Thanks
Posted on: 23rd Sep, 2009 06:59 am
Hi dee!

Welcome to forums!

The bankruptcy court and your creditors would look into your situation and would come up with a repayment plan for your unsecured debts. It will depend upon the bank as to what your monthly payments would be like.

Feel free to ask if you've further queries.

Posted on: 23rd Sep, 2009 09:48 pm
i was told by 6 attorneys so far i should have filed chapter 7 bankruptcy. but i am encountering a problem. i have an ira with the 72t rule. i am so glad because i only have a part time job and desperating looking for full time work. i am single. my only asset is this ira. i am researching on line and everything i am reading shows it is not protected under chapter 7. what about chapter 13? 3 attorneys would not gaurantee the protection of this ira. help!
Posted on: 02nd Oct, 2009 01:43 pm far as I know, IRA accounts are protected under the bankruptcy law. Your creditors will not be able to touch your IRA account though you file for Chapter 7 bankruptcy.
Posted on: 02nd Oct, 2009 11:38 pm
my mother transferred the deed to her home to me in a life estate, she has all rights to remain there until she dies, i cannot sell it until she dies, she is healthy. if i file chapter 7 in florida, and the house is in new york, can they put a lien on her home until she dies and it can be sold, which may be 15 years or more, and if i transfer the deed back to her and file chapter 7 eight months prior to filing bankrupcty will that appear fraudulent? I have no assetts other than my name on that deed, which means nothing because I cannot sell it.
Posted on: 04th Oct, 2009 08:33 am
hi tasio!

welcome to forums!

as far as i know, if you file chapter 7 bankruptcy, you will have to include the concerned property as your asset. also, if the property is free and clear, the trustee will have the right to sell it off to pay off your creditors. if you transfer the property now to your mother, you will have to wait for about a year in order to file bankruptcy. if you file bankruptcy before that it would be considered as a fraud. if you are filing bankruptcy for your unsecured debts, it would be a better idea to file chapter 13. in that case, you won't have to list this property in your bankruptcy filing.

Posted on: 04th Oct, 2009 08:32 pm
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