Chapter 13 bankruptcy is referred to as a wage earner’s plan. It is available to individuals with regular income who are able to develop a plan to pay off some or all of their debts by making regular payments to the bankruptcy court. “Chapter 13” refers to a section of the United States Bankruptcy Code, the federal law that governs the process. If you or you and your spouse have regular income and struggle to pay your bills, Chapter 13 may be a process to consider.
In a Chapter 13 process, you keep your property and develop a repayment plan under the supervision of the court. The plan provides for payback over a three to five year period. If you are eligible for a Chapter 13 process, the benefits can include:
At Modestas Law, we have substantial experience in Illinois with Chapter 13 bankruptcy, as well as other bankruptcy proceedings. If you are considering Chapter 13 bankruptcy, an important first step is understanding more about eligibility for Chapter 13 and the court process.
If you have a steady source of income, even if you are self-employed or running an unincorporated business, you can file under Chapter 13 if your debts are under specific limits. The limits are adjusted every three years. As of April 1, 2016, your unsecured debts (like credit cards and medical costs) must be less than $394,725, and your secured debts (like your home and car) must be less than $1,184,200.
Spouses may file individually or jointly. Each one’s debts must be within the specified limits. Corporations and partnerships are not eligible to file under Chapter 13.
In addition, to be eligible to file, you must complete credit counseling with an approved nonprofit budget and credit counseling agency within the six months preceding the initial filing.
The process begins with filing a petition in the United States Bankruptcy Court. You also file additional detailed information about:
At the same time as the petition is filed or within 14 days, you also must file a proposed repayment plan with the court. The plan must meet specific requirements for satisfying your debts. The repayment plan proposes fixed-amount payments on a regular basis, usually monthly. In some cases, the plan may offer less than full payment of your debts. Depending on your monthly income, your plan will propose repayment over either a three-year or five-year period.
Filing the petition creates an automatic stay of most collection actions against you or your property. As long as the stay is in effect, creditors cannot take any action against you and have to stop all collection efforts.
Shortly after the petition is filed, a bankruptcy trustee is appointed to supervise your case. In a Chapter 13 process, the trustee acts as both the reviewer and disbursing agent, collecting your payments under the payment plan and distributing them to your creditors. During your payment plan, you have no direct dealings with your creditors.
The trustee will schedule a meeting of creditors. At the meeting, you are sworn to testify, and both the trustee and creditors may ask questions. You must attend the meeting and answer questions about your financial affairs and the proposed terms of the plan. Most often, issues with the proposed repayment plan are resolved during or shortly after the creditors’ meeting.
Within thirty days after you file the petition, even if your plan has not yet been approved by the court, you must start making payments to the trustee as provided by the plan.
Within forty-five days after the meeting of creditors, the bankruptcy judge holds a confirmation hearing to determine whether your plan is feasible and meets the standards for confirmation under the Bankruptcy Code. Creditors are notified of the hearing and may object to the confirmation.
If the court approves the plan, the trustee begins to distribute funds received under the plan. If the court does not approve the plan, you can file a modified plan or convert the case to a Chapter 7 bankruptcy.
Once confirmed by the Bankruptcy Court, the repayment plan binds both you and your creditors. You must make the regular scheduled payments to the trustee. You cannot incur new debt without consulting the trustee, because it could compromise your ability to make plan payments. If you fail to make plan payments, the court may dismiss your case or convert it to a Chapter 7 case.
You are entitled to a discharge on completion of your Chapter 13 payment plan and meeting other specific requirements, including completion of a financial management course. The discharge releases you from all debts covered by the plan, with the exception of specific long-term obligations like your home mortgage.
A Chapter 13 discharge stays on your credit report for seven years after the date you file the petition.
Modestas Law serves Illinois clients in Chicago, Cook County, DuPage County, and Will County. To accommodate clients who are busy during weekdays, we are available to meet in the evening and on weekends.
Contact us to schedule your initial free consultation.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.