Chapter 13 Wage Earner Bankruptcy Basics Text Size:

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An individual or sole proprietor can file Chapter 13 bankrupty. Chapter 13 provides for full or partial repayment of your debts over a three- to five-year time period based on your debts and other factors. Like Chapter 11, you'll go through a "means test" to determine the amount of debt you'll have to pay back and how long you have to do it.
The courts make their determination based on your income, whether it's less, the same or more than your state's median income. If your income is more than your state's median income, the repayment period will most likely be five year. No plan exceeds five years.
People who have the following often file Chapter 13 bankruptcy:

• Mortgages or other loans they would like to bring current, so they don't lose their homes or other property
• Taxes, child support or student loans that can't be wiped out by Chapter 7 bankruptcy
• Moral convictions that all debts should be paid no matter how long it takes

Basic Chapter 13 Requirements

To declare this type of bankruptcy, you'll need a stable income with "disposable income," that's income left over after you pay the bare necessities of life such as food and utility. You can't have more than $922,975 in secured debt (property or other assets a creditor might atke if you don't make payments) and $307,675 in unsecured debt. These amounts change periodically to reflect changes in the Consumer Price Index. There's also a court filing fee.

The Chapter 13 Process

Here is the process to file Chapter 13 Wage Earner Bankruptcy.

File a petition in Bankruptcy Court. You must bring a list of creditors, assets and liabilities and current income and expenses, you must also file a "Statement of Financial Affairs." It must provide the following:

• Income from employment or business operations including amounts and sources
• Other income
• Payments made to the creditors within 90 days of the filing
• Payments made within one year of filing to creditors who were "insiders" - relatives, partners and corporations where you're an officer of the company
• A list of lawsuits that you were a party to within a year of filing
• All property, including that which was garnished or seized
• Property that was repossessed within one year before filing
• Assignment of property for benefit of creditors within 120 days before filing
• Gifts and chartiable contributions made within one year of filing
• Losses from fire, theft, gambling, etc., within one year or since the beginning of the action
• Payments made for debt counseling or bankruptcy, including attorney fees
• Transfers of property made within two years before filing
• Property transferred to a trust within 10 years prior to filing
• Financial accounts that were closed within one year
• Safe deposit boxes
• Setoffs to creditors
• Property held for another person
• All premises occupied within the last 3 years.
• The names and addresses of spouses and former spouses if the debtor lived in community property state.
• Any businesses owned

Other Consideratons

It's important that all forms and information provided is accurate. Debts not listed won't be canceled. Failing to list assets may look like you're trying to hide them and may result in serious fines or other consequences, including denial of discharge or charges of fraud.

The bankruptcy petition must be accompanied by a proposed payment plan, which must provide for payment of all "priority claims" in full unless the creditor agrees to a differen plan. If the claim is a domestic support (child support or alimony), you agree to contribute all of your disposable income to a five-year plan. Priority claims are given a special status under bankruptcy law, such as taxes and the fees associated with filing for bankruptcy. There are limitations on modifying payments due on home mortgages.

An appointed trustee must review the proposed plan for accuracy and feasability. The plan is distributed to creditors who have the right to object to the plan if it's unreasonable.

If the plan is approved, you keep all assets during the period of the plan. Monthly payments are made to the trustee who then pays the funds to the creditors according to the plan. When the plan has been completed as approved, the rest of the debts are discharged. However, if the plan wasn't completed in full over the time allowed, several alternatives are available depending on why the plan wasn't completed. 

Payment Plan Incomplete

What happens if you can't complete the payment plan? In some cases, the bankruptcy trustee may supposrt a modification to the plan if you're unable to complete the payments dut to circumstances you aren't "just held accountable" for and your creditors have received as much as they would have under Chapter 7. You can apply for a hardship discharge if you've lost your job or had a serious illness.

If the plan wasn't completed for other reasons, creditors may apply to the court to terminate Chatper 13. When this happens, collection efforts against you may resume as before.

Questions For Your Attorney

• Given my circumstances, is filing for bankruptcy under Chapter 13 a good choice?
• What happens if I gain or lose property after I file under Chapter 13? Can I revise my petition?
• What if I lose my job after I file, can I revise my petition?

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