Chapter 13 Wage Earner Bankruptcy Basics

en Español

If you're an individual or a sole proprietor, you can file a Chapter 13 bankruptcy to repay all or part of your debts. Under this chapter, you can propose a repayment plan in which to pay your creditors over three to five years. If your monthly income is less than your state's median income, the plan will be for three years unless the court finds "just cause" for a longer period. If your monthly income is greater than your state's median income, the plan must generally be for five years. You cannot have a plan that exceeds the five year limitation.

Many people who file Chapter 13 bankruptcies have:

• 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

For a Chapter 13 bankruptcy, you'll need a stable income with disposable income (income left over after you pay the bare necessities of life such as shelter, food and utilities). You must have no more than $922,975 in secured debt (debt involving property that your creditor might take if you don't make your payments) and $307,675 in unsecured debt. These amounts are adjusted periodically to reflect changes in the consumer price index. The court filing fee is $274.

The Chapter 13 Process

Following are the steps in the Chapter 13 Wage Earner Bankruptcy process:

The process begins similarly to a Chapter 7 bankruptcy proceeding, with the filing of a petition by the debtor in the federal Bankruptcy Court. In addition to a list of creditors and a schedule of assets and liabilities and a schedule of current income and current expenditures, the debtor must also file a "Statement of Financial Affairs". This statement must indicate:

• Any income of the debtor from employment or operation of business including the amounts and the sources.
• Any other income.
• A list of all payments made to creditors of consumer debts within 90 days of the commencement of the bankruptcy filing.
• A list of all payments made within 1 year of filing to or for benefit of creditors who were insiders (relatives, partners, corporations of which debtor is an officer).
• A list of suits to which the debtor is, or was, a party within one year prior to filing.
• A list all property attached, garnished, or seized.
• A list all property that was repossessed within 1 year before filing.
• A list any assignment of property for benefit of creditors within 120 days before filing.
• A list of gifts and charitable contributions made within 1 year of filing.
• All losses from fire, theft, gambling etc. within 1 year or since the commencement of the action.
• Any payments made for debt counseling or bankruptcy (including attorneys).
• Any transfers of property made within 2 years before filing.
• Any property transferred to a trust within 10 years prior to filing.
• All financial accounts that were closed within 1 year.
• All safe deposit boxes.
• Any setoffs to creditors.
• Any property held for another.
• All premises occupied within last 3 years.
• The names and addresses of spouses and former spouses if the debtor lived in community property state.
• Any businesses.

It is extremely important that all the forms are completed accurately. Debts that are not listed will not be discharged at the completion of the bankruptcy proceeding. Failing to list assets in an attempt to hide them from creditors may result in serious consequences, including the denial of discharge or charges of bankruptcy fraud.

The filing of the bankruptcy petition must be accompanied by a proposed payment plan over three to five years. The proposed payment plan must provide for the payment of all "priority claims" in full unless the particular priority creditor agrees to a different plan or, if the claim is a domestic support obligation, you agree to contribute all of your disposable income to a five year plan. "Priority claims" are those claims that are given a special status under bankruptcy law, such as taxes and the costs of the bankruptcy proceeding. There are limitations on the ability to modify the payments due on home mortgage loans under Chapter 13.

The bankruptcy trustee appointed by the Bankruptcy Court must review the proposed plan for accuracy and feasibility. The proposed plan is distributed to creditors who have the right to object to the plan if it is unreasonable. If the plan is approved, the debtor keeps all assets during the period of the plan. The debtor makes monthly payments to the bankruptcy trustee who distributes the funds to the creditors according to the plan. If the plan is completed as approved, the debtor is discharged from unpaid debts. If the proposed plan is not completed as approved, several alternatives are open to the debtor depending upon the reasons for the non-completion of the plan.

The bankruptcy trustee may support a modification in the plan if you are unable to complete it, because of circumstances such as serious illness or loss of a job. If the inability to complete the plan is due to circumstances for which you cannot "justly be held accountable," and if your creditors received at least as much as they would have under Chapter 7, and modification is not possible, you can apply for a hardship discharge. The hardship discharge does not apply to debts that were not dischargeable under Chapter 7. See 11 USC 1328(b).

If the debtor fails to keep up payments on the plan, creditors may apply to the Bankruptcy Court to terminate the Chapter 13 proceeding by dismissing the proceeding entirely. If the proceeding is dismissed in its entirety, collection efforts against the debtor's assets may resume as before.

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