What Is Chapter 13?
Chapter 13 refers to a United States bankruptcy proceeding in which debtors undertake a reorganization of their finances under the supervision and authorization of the courts. Individuals and married couples, even if self-employed or operating an unincorporated company, are eligible to apply for Chapter 13 bankruptcy.
As part of a Chapter 13 reorganization, which is also referred to as a wage earner's plan, debtors must submit and follow through with a strategy to repay outstanding creditors within three to five years.
In the majority of situations the repayment strategy must provide a considerable payback to creditors-- at least equal to what they would acquire under other forms of bankruptcy-- and it has to, if needed, use 100% of the debtor's disposable income for repayment.
Understanding Chapter 13
With a Chapter 13 bankruptcy, debtors must compile a list of all creditors and the amount of money owed to each, a list of any property owned, information concerning income amounts and sources, as well as comprehensive information about monthly expenses.
A debtor then pays an agreed-upon monthly amount to an appointed, unbiased bankruptcy trustee, effectively consolidating debts into one monthly amount. The trustee in turn allocates the money to the debtor's creditors. Debtors have no direct contact with creditors under Chapter 13 protection.
Consumers are qualified to make use of Chapter 13 only if their debts are below specific limits: $419,275 for unsecured debt and $1,257,850 for secured debt as of February 2019 (increases come in three-year intervals). Filers must also have completed credit counseling to be considered eligible for Chapter 13.