What Is Chapter 13?
Chapter 13 refers to an U.S. bankruptcy proceeding in which debtors undergo a reorganization of their finances under the supervision and authorization of the courts. Individuals as well as married couples, even if self-employed or operating an unincorporated company, are qualified to file for Chapter 13 bankruptcy.
As part of a Chapter 13 reorganization, which is also referred to as a wage earner's plan, debtors have to submit and follow through with a plan to repay outstanding creditors within three to five years.
In most situations the payment plan must provide a considerable payback to creditors-- at least equal to what they would receive under other forms of bankruptcy-- and it has to, if required, use 100% of the debtor's disposable income for payment.
Understanding Chapter 13
With a Chapter 13 bankruptcy, debtors have to compile a list of all creditors and the amount of money owed to each, a list of any property owned, information about income amounts and sources, as well as detailed information about monthly expenses.
A debtor then pays an agreed-upon monthly amount to an assigned, unbiased bankruptcy trustee, effectively consolidating debts into one monthly amount. The trustee subsequently distributes 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 certain limits: $419,275 for unsecured debt and $1,257,850 for secured debt as of February 2019 (increases come in three-year periods).
Filers must also have completed credit counseling to be considered eligible for Chapter 13.
