In contrast to a Chapter 7 Bankruptcy, in which you may eliminate most or all of your debts, in a Chapter 13 Bankruptcy, you pay some or all of your debts over a period of up to five years. Accordingly, Chapter 13 Bankruptcy is looked to for relief when Chapter 7 is not an option.

The following are reasons to file a Chapter 13 Bankruptcy:

1. You have too much income to file under Chapter 7.
2. You have fallen behind in mortgage payments and want to keep your home.
3. Your home is in foreclosure, and you want to keep it.
4. You have a second mortgage on your residence that you want to eliminate.
5. You have property that is either non-exempt or exceeds permitted value limits, and you want to keep the property.
6. You cannot file a Chapter 7 Bankruptcy, because you received a discharge under that chapter for which you filed less than eight years ago.

As in a Chapter 7 Bankruptcy, to file your bankruptcy under Chapter 13, you must complete the classes in Credit Counseling and Personal Financial Management. Each class takes about two hours and is offered by court-approved organizations, which charge a modest fee, usually $50 for each class. The classes may be taken in person, on the telephone, or on the Internet. The Credit Counseling class must be taken within 180 days preceding the filing of your bankruptcy petition. The Personal Financial Management class must be taken prior to the completion of your Chapter 13 plan.

Find an approved agency that provides credit counseling
Find an approved agency that provides the Personal Financial Management course

In a Chapter 13 Bankruptcy, there are two different types of hearings that you will be required to attend. As in a Chapter 7 Bankruptcy, there is a “Meeting of Creditors.” This is a bit of a misnomer, since creditors rarely appear. The second type of hearing, which does not occur in a Chapter 7 Bankruptcy, is the “Confirmation Hearing.” The court may waive the requirement of the Confirmation Hearing.

In a Chapter 13 Bankruptcy, your creditors must fair no worse than they would had if you had filed a Chapter 7 Bankruptcy. For example, since in a Chapter 7 Bankruptcy you are only allowed to keep your home if you have no more than $50,000 in equity. If you filed a Chapter 7 Bankruptcy and owned a home with $150,000 in equity, the trustee would sell the house and have up to $100,000 to pay your unsecured creditors.

Thus, if you file a Chapter 13 Bankruptcy and own a home that has $150,000 in equity, you must pay $100,000 to your unsecured creditors in a payment plan. This assumes that you have at least $100,000 in unsecured debts. If you owe only $50,000 in unsecured debts, your creditors will be paid in full. However, if you owe $200,000 in unsecured debts, your creditors will be paid only half of the money you owe them. Once the final payment is made under the plan, the remaining debt will be discharged, which means that you will not have to pay it.

This example has been simplified to provide an idea of how Chapter 13 works. If, for example, your house were to be sold by the trustee there would be expenses associated with the sale, and the trustee would receive a fee. Accordingly, if you are only slightly over your allowed exemption, you may still be able to file a Chapter 7 Bankruptcy.

In addition to unsecured creditors being paid in part or in full, secured loans, such as your home and your car, must be brought current and paid on time during the payment plan.

A unique aspect of Chapter 13 is that, if you have a second mortgage on your primary residence that is totally unsecured, that is the value of the home is less than the amount owed on the first mortgage, you may totally remove that second mortgage.

If you need to file Chapter 13 Bankruptcy because your income is too high to file a Chapter 7 Bankruptcy, the amount that you will need to pay to creditors in a Chapter 13 payment plan will be based upon the amount that your income exceeds the limit to qualify for a Chapter 7 Bankruptcy and the amount of your debts.

In a Chapter 13 Bankruptcy, a payment plan is established to permit you to make payments over a period of time, which may be as long as five years. Debts that are not dischargeable may still be paid under the plan. This may help with debts that cannot be eliminated in a Chapter 7 Bankruptcy, such as taxes and student loans. To qualify for a Chapter 13 Bankruptcy, you must have enough income to pay your living expenses and payments under the plan. There are also limits concerning the amount of debts that can be processed in a Chapter 13 Bankruptcy. Currently, the total amount of unsecured debts, such as credit card debts and personal loans, may not exceed $336,900, and the total amount of secured debts, such as mortgages and auto loans, may not exceed $1,010,650. These amounts are periodically increased. If your debts exceed these amounts, you may be able to file a Chapter 11 Bankruptcy.

Procedure & Cost

During our free consultation, we will review your situation and advise you of your options and of our fees. Our fee for a Chapter 13 Bankruptcy is usually between $2,500 and $3,500. The exact amount will depend upon the following factors: whether you have previously filed for a Chapter 13 Bankruptcy; how much you owe; the types of debts; what type of property you have; whether you are self-employed; and whether you are filing with your spouse. In addition to our legal fee, you must pay $274 for the court filing fee and $35 for a credit report (combined from all three major credit reporting agencies). In addition, you must pay $100 to the organization that provides the two required classes. At the end of our free consultation, you will know exactly what the Chapter 13 Bankruptcy will cost.

If you wish to retain our office with regard to a Chapter 13 Bankruptcy, you must sign a retainer agreement and pay a deposit, also known as a retainer fee, of $500. After your first payment, you must pay us at least $500 per month until the balance of our fee is paid in full. Once you have retained our law office, you may tell your creditors that they must call us and not you.

When you have paid our fee in full, you will need to complete the first required class, Debtor Counseling, which may be taken in person, over the telephone or on the Internet. Once you have completed that class, we will prepare your petition and file it with the Court. The moment that we file your bankruptcy petition with the Court, an automatic stay will be issued that will stop your creditors from taking any collection and legal actions against you. As a result, if your house is being foreclosed, your wages are being garnished, or your bank accounts have been frozen, the creditors must stop all such actions. If any money is taken from you once we file your petition, the money must be returned to you. Once we file your petition, you must begin making your payments under Chapter 13 according to your payment plan.

Once your petition is filed, you must take your second required class, which is called Personal Financial Management. The deadline to take this class is prior to the completion of your Chapter 13 plan.

The Meeting of Creditors will take place about one month after the filing of the petition. At this hearing, you will be questioned by the bankruptcy trustee regarding your assets and your debts. The questioning usually takes approximately 10 minutes. We will prepare you for the questions that will be asked and will be at your side during the hearing. If the bankruptcy trustee is satisfied and has no further questions, he or she will “close” the meeting. However, if the bankruptcy trustee has further questions, a second hearing will be scheduled to occur approximately two weeks later. We will accompany you to that meeting as well.

After the Meeting of Creditors, the Confirmation Hearing will be held. At this hearing, assuming that the bankruptcy trustee is satisfied with your proposed payment plan, he or she will approve your plan. Once you have completed all of your payments under the plan, you will receive a discharge. The discharge, along with your bankruptcy petition, will be proof that you are no longer responsible for your discharged debts.