Chapter 13: Adjustment of Debts
Who can file a Chapter 13 bankruptcy petition?
You may file a Chapter 13 bankruptcy petition if you:
- reside, have a domicile, a place of business, or property in the United States, or a municipality;
- have a source of regular income; and
- on the date the petition is filed you owe less than $394,725 in unsecured debts and less than $1,184,200 in secured debts (Secured debts are debts where you signed an agreement to allow the creditor to recover the property if you fail to make payments -usually a car or house).
Corporations and partnerships may not file a Chapter 13 bankruptcy petition.
What can I expect from a Chapter 13 bankruptcy?
Chapter 13 bankruptcy is a federal court process designed to reorganize and repay your debts. The court will appoint a trustee, who will oversee your court-approved plan to repay your creditors. Under a Chapter 13 plan, some debts will be repaid completely, some will be partly repaid and other debts will be eliminated entirely. If you are successful, after the 3-5 year plan is completed, the court will discharge (eliminate) any remaining debts. Unlike Chapter 7 Bankruptcy, you will not lose any property.
Here is what to expect.
First you will file a petition, some forms and a repayment plan with the court. Under penalty of perjury, you will need to list all of your income, your expenses, your property, your debts, any property that you owned and sold or gave away within the last 2 years, and money you spent over the last 2 years.
You will need to create a repayment plan. The court must approve the plan. The plan must show how you will pay your monthly living expenses and use your additional income to pay back some of the debts you owe over a 3-5 year period. If you want to keep your house or car, your plan must show that you will be able to keep up the monthly payments and pay the back money that you owe.
The court will send out a notice to all of your creditors. The notice will tell the creditor that you have filed for a Chapter 13 bankruptcy and that the creditor is under court order (a "stay") to immediately stop all efforts that they have been making to collect the debts you owe to them.
The court will appoint a person called a "trustee". A trustee will oversee your case for the next 3-5 years. The trustee will take temporary control of your property.
About a month or six weeks after you file, you will need to attend a hearing called a "meeting of creditors". At this hearing the trustee will look at your papers and ask you questions about your finances. Often the people or businesses to whom you owe money (creditors) will attend, especially if they do not like your repayment plan.
A second hearing will be held before a bankruptcy judge. The judge will decide if you can go ahead with your repayment plan. Once your plan is approved, you will again be able to control your property, except for the portion of your wages that may be deducted for repayment.
Wage deductions - If you have regular employment, the court will probably order deductions from your wages in order to make the payments scheduled under your plan.
After completion of the plan, the court will discharge (eliminate) any remaining debts.