Chapter 13 bankruptcy is an option available to a financially troubled person who has regular monthly income. The debtor need not be a regular wage earner or a salaried; but should have sufficient income to make necessary repayments to pay off his/her creditors. In a Chapter 13 bankruptcy, the debtor need not surrender his/her real property, but can pay his/her debts off in full or part within a specific time period.
It is the duty of the debtor to attend credit counseling by an agency approved by the United States Trustee’s office before filing for Chapter 13 bankruptcy. A debtor who has sufficient regular monthly income shall be eligible for Chapter 13 plan. Such an individual’s unsecured debts should be less than $360,475 and secured debts under $1,081,400. However, these amounts may be adjusted periodically to reflect changes in the consumer price index.
The Chapter 13 bankruptcy filing petition should also be accompanied by a repayment plan. The repayment plan will be usually for three years. It may also extend to five years according to the debtor’s income and the size of the debts. Before confirmation of bankruptcy, the petitioner has to attend a creditors meeting. In this meeting, the creditors will assess the petitioner’s financial situation. The creditors can comment on the debtor’s repayment plan and make recommendations to the court. Once the repayment plan is approved, the debtor should start making prompt payments.
Within 45 days after the creditor’s meeting, the Court will summon the debtor and inform whether the repayment plan is accepted or needs to be modified. In this confirmation hearing, the Court will verify whether the plan meets the standards set forth in the Bankruptcy Code. All the creditors will be notified about the confirmation hearing giving them a chance to object to the debtor’s payment plan.
All payments will be made to a trustee appointed by the U.S. trustee services. The trustee will be the representative of creditors and will ensure that the repayment plan is properly followed. The trustee will collect money from the debtor and make payments to the creditors. All priority debts including child support and alimony, employee wages, and tax obligations should be paid off in full. Then the trustee will pay all the secured debts such as mortgages and vehicle loans. Finally, unsecured creditors will be paid in full or part.