Thomas K. McKnight LLP - Chapter 13 Bankruptcy
What Is Chapter 13?
Chapter 13 refers to a United States bankruptcy proceeding in which debtors undergo a reorganization of their finances under the supervision and approval of the courts. Individuals and married couples, even if self-employed or running an unincorporated business, are eligible to declare Chapter 13 bankruptcy.
As part of a Chapter 13 reorganization, which is also known as a wage earner's plan, debtors must submit and follow through with a plan to pay back outstanding creditors within three to five years.
In most situations the payment strategy must offer a substantial payback to creditors-- at least equal to what they would get under other forms of bankruptcy-- and it must, if needed, use 100% of the debtor's disposable income for repayment.
Understanding Chapter 13
With a Chapter 13 bankruptcy, debtors must assemble a list of all creditors and the amount of money owed to each, a list of any property owned, information regarding income amounts and sources, as well as comprehensive information concerning 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 eligible to use 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 intervals).
Filers have to also have completed credit counseling to be considered eligible for Chapter 13.