Chapter 13 bankruptcy is a specific type of bankruptcy under the Bankruptcy Code that allows individuals with a regular income to reorganize their debts while retaining their assets. It’s often referred to as a “wage earner’s plan” and differs from Chapter 7 bankruptcy, which involves the liquidation of assets to pay off debts.

The primary goal of Chapter 13 bankruptcy is to create a structured repayment plan that allows the debtor to pay back their creditors over a period of three to five years. This plan is typically designed to accommodate the debtor’s income and reasonable living expenses while requiring the debtor to make a monthly “plan payment” that gets distributed to creditors.

One of the significant advantages of Chapter 13 bankruptcy is that it enables individuals to rescue their home from foreclosure and get current on their mortgage through a repayment plan (more on this below). Saving a home from foreclosure is one of the primary reasons for filing a Chapter 13. The other reason many people file a Chapter 13 instead of Chapter 7 bankruptcy is if they make too much money to meet the income qualifications for a Chapter 7.

Who Qualifies for a Chapter 13 Bankruptcy?

Unlike a Chapter 7 bankruptcy, there are no income limitations on a Chapter 13 bankruptcy. If you have a lot of debt, you can usually file a Chapter 13 bankruptcy no matter how much money you make.

The only real qualification for a Chapter 13 is that you need to have enough regular monthly income to pay for your basic living expenses and have enough left over to make a monthly bankruptcy plan payment. In other words, you need to make enough money to pay for everything (this includes your expenses AND monthly payments on things like your cars and your house) plus pay a certain amount into the bankruptcy plan.

There are also some maximum debt limits on a Chapter 13 bankruptcy. The debtor’s total unsecured debts must be less than $419,275, and secured debts should be under $1,257,850 (these figures are periodically adjusted for inflation).

The Chapter 13 Process

The process of filing for Chapter 13 bankruptcy typically involves several steps:

• Pre-Filing Credit Counseling: Before filing, debtors must undergo credit counseling from an approved agency.
• Filing Petition and Proposed Repayment Plan: The debtor files a petition for Chapter 13 bankruptcy and submits a proposed repayment plan to the bankruptcy court. The plan outlines how the debtor will repay their creditors over the designated period.
• Trustee Meeting: Formally called the “meeting of creditors” this is usually just a meeting with the bankruptcy trustee and the debtor (and their lawyer). This is when the trustee provides feedback on whether they think the plan is okay and whether they think the debtor’s monthly budget is valid.
• Confirmation Hearing: The bankruptcy court holds a confirmation hearing to review and approve the proposed repayment plan. Creditors have the opportunity to object to the plan during this stage. This step is usually a formality because the debtor and their attorney will know in advance whether the trustee is consenting to confirmation of the plan.
• Repayment Period: If the court confirms the plan, the debtor must adhere to the approved repayment schedule, making regular payments to a court-appointed trustee. The trustee then distributes payments to creditors according to the plan.
• Debt Discharge: Upon successfully completing the repayment plan, the debtor receives a discharge of any remaining eligible debts. However, some obligations, such as certain tax debts and student loans, may not be discharged.

Chapter 13 bankruptcy offers individuals a structured path to regain control of their finances, protect their assets, and repay their debts. It provides a viable option for those who have a regular income but need assistance in managing overwhelming debt burdens. However, it’s crucial to consult with a qualified bankruptcy attorney or financial advisor to understand the implications and requirements of filing for Chapter 13 bankruptcy and to navigate the process effectively.