Bankruptcy Law: Deciphering Chapter 13

Chapter 13 bankruptcy differs from Chapter 7 bankruptcy law in a number of crucial ways. While Chapter 7 is designed to wipe out many types of debt and give you a second chance, Chapter 13 Bankruptcy is designed to give you the breathing room you need to reorganize your debt and pay it off over three- to five-years.

Bankruptcy laws were changed a few years ago, and now it’s more difficult for people to meet the income requirements to achieve Chapter 7 eligibility, which states that your income for the last six months must be less than the median income for a family of four in your state. Other people choose Chapter 13 bankruptcy over Chapter 7 because they have personal property that they want to keep, which would be liquidated in a Chapter 7 proceeding. Or, they have a number of debts (like back taxes, child support, and student loans) that won’t be discharged under Chapter 7, or they have the desire to meet their debt obligations and just need time to do so.

In order to be eligible for Chapter 13 Bankruptcy, you need to meet certain requirements:

• You must have a regular income stream that provides you with money over and above what you need in order to meet your living expenses. This extra income will be used to pay off your debt
• The amount of secured debt you have can be no more than about $900,000, and the amount of unsecured debt you can have can be no more than about $300,000. The actual figures change annually according to the Consumer Price Index.

A Chapter 13 bankruptcy also differs from Chapter 7 because the scope of the financial statements has more depth and breadth. In addition to income, assets, and liabilities, you need to submit extensive information on payments made to creditors, charitable contributions, property-related matters, and so forth. You must also submit a three- to five-year payment plan, outlining how you will repay creditors in the coming years. Because it is extremely important that these documents be accurate (if they aren’t, you may face a charge of fraud), it pays to engage the services of an attorney who is familiar with bankruptcy law and who can guide you through the process.

Under Chapter 13, you can stop foreclosure proceedings and pay off delinquent mortgage payments over time as long as you pay on time. Besides the mortgage, you may be able to lower payments and reschedule other secured debts across the term of the plan. Chapter 13 offers you the opportunity to consolidate your loans and make payments within your plan directly to your Chapter 13 trustee, who will then make the payments for you. This way, you’ll have no direct contact with creditors while under Chapter 13 protection.

Typically, a court-appointed bankruptcy trustee reviews your financial statements and repayment plan to ensure that they are both accurate and reasonable. Once your Chapter 13 bankruptcy is approved, you are allowed to keep your property as long as you meet the repayment schedule. While the repayment plan can be modified or your debts discharged if you find yourself in a hardship situation (such as the loss of a job or major medical expenses), if you don’t meet your obligations then your creditors can ask the bankruptcy court to set aside the Chapter 13 ruling. If that happens, creditors can once again collect on debts by any means possible under the law.

The attorneys at Lemberg & Associates can help you through the process. It’s best not to try to go it alone. A seasoned attorney with the knowledge of the bankruptcy law can advise you to what’s best for you and help you get the new start you deserve.