Are you employed? Do you own property and want to avoid foreclosure? Chapter 13 bankruptcy is designed to allow you to maintain possession of your property. Chapter 13 is also referred to as ‘the wage earners plan,’ because it allows individuals with a steady income to have the courts intervene between the individual and their creditors to set up a repayment plan spanning over the next three to five years. While under the protection of Chapter 13 bankruptcy, the law forbids creditors from contacting the individual directly. The individual makes a monthly payment to a Chapter 13 trustee, who distributes the payment to creditors. As long as the individual keeps up with their monthly payments, they can avoid any foreclosures or repossessions of their property. By filing under Chapter 13, individuals can halt foreclosure proceedings, and be given the opportunity to catch up on delinquent mortgage payments.
Individuals under the protection of Chapter 13 can:
- Reschedule and extend secured debts over the duration of Chapter 13 plan
- Lower monthly payments on secured debts
- Avoid property foreclosures and repossessions
- Protect co-signers who are associated with the individuals debt
- Get current with missed mortgage payments
Who can file for Chapter 13 Bankruptcy?
Chapter 13 bankruptcy can be filed by any individual, even if self-employed, providing the individual’s unsecured debts are less than $419,275 and secured debts are less than $1,257,850. Please note, these amounts are approximate because they adjust periodically to reflect the consumer price index. In general, if the individual’s current monthly income is below the state median, the plan will be for three years. If the current income is above the state median, the plan will be for five years. No plans are extended beyond five years.
If the individual is married, they can file for a joint Chapter 13 Bankruptcy. If the individual is married, and wishes to file Chapter 13 independently, the courts will still require all income information for the spouse be submitted to accurately determine the financial situation of the household.
What is Required to File Chapter 13 Bankruptcy?
In order to qualify for Chapter 13, or any bankruptcy chapter, the individual must seek credit counseling within 180 days of filing. The credit counseling must be done by and approved agency, and can be completed in either an individual or group setting.
In addition to the official filing documents, the courts also require:
- List of assets and liabilities
- List of current income and expenditures
- List of executory contracts and unexpired leases
- A statement of financial affairs
- A certificate showing the completion of credit counseling and a copy of any repayment plans developed through the counseling program
- A record of any interest the debtor may have in federal or state qualified education/ tuition accounts
Once the protection of Chapter 13 is granted, the individual will need to provide their assigned Chapter 13 trustee with tax returns from the most recent tax year, and any tax returned filed during the duration of the case.
During the three to five years, providing that the individual makes their scheduled payments, and does not incur any additional debt, the plan entitled the individual to retain ownership of their property. To increase the likelihood of payments being made on time, it is an option make payments through payroll deductions. If the individual fails to keep up with the payments, the courts can choose to either dismiss the case, or convert it to a liquidation plan under Chapter 7 bankruptcy.