A Chapter 13 bankruptcy is a reorganization or repayment bankruptcy designed for individuals and small business owners with a regular monthly income.
In Chapter 13, the court and a standing trustee supervise a court-ordered payment plan where creditors are paid back some or all the money you owe through a single monthly trustee payment. The payment plan can be used to pay missed mortgage payments, back rent, IRS or New Jersey taxes, property taxes, and most other kinds of debt.
To be eligible for Chapter 13 bankruptcy, you must be able to afford your monthly bills and have extra money left over each month to pay the trustee. How much you need to pay the trustee each month requires a case-by-case analysis of your assets, your household’s disposable income, and the debts you owe.
Benefits
- As soon as the case is filed, it becomes unlawful for creditors to collect a debt directly. Lawsuits, wage garnishments, bank levies, sheriff sales, pending evictions, phone calls, text messages, and collection notices must stop immediately. Utility shutoffs must also be stopped once the case is filed.
- Chapter 13 stops repossessions and foreclosures. Delinquent secured debts, like missed mortgage payments or late car payments, can be repaid over the course of several years.
- At the end of the case, a discharge order wipes out most debts permanently- discharged creditors can never collect again. The discharge order covers most debt, including credit cards, medical bills, personal loans, payday loans, overdue utility bills, and deficiencies from repossessions or foreclosures.
- Chapter 13 creates a court-ordered repayment plan with a single payment made to a trustee, in which creditors must participate. The payment usually lasts between 36 and 60 months (three to five years).
- Insurance surcharges can be included, clearing the way to restoring a suspended driver’s license shortly after filing.
- Married couples can file together to address both spouses’ debts, or if only one spouse has debt problems, they can file individually.
- In addition to funding a Chapter 13 with future earnings, you can fund a plan with the sale of your assets or with help from family or friends.
Limitations
- The law requires a minimum monthly payment to the Chapter 13 trustee based on your disposable income, the value of your assets, or the kinds of debt you owe. If you cannot afford to make the required minimum payment to the trustee, you may not be eligible for Chapter 13.
- Some debts are not dischargeable in Chapter 13. Domestic support obligations (child support and alimony), most student loans, recent taxes, and debts related to injuries caused by intoxicated driving or intentional conduct must be paid through the plan, or they will survive the bankruptcy.
- During the repayment plan, you must report changes in income, expenses, or assets to the trustee, which might impact the payment plan. In addition, if you want to borrow any new money, such as a loan to replace a vehicle, you will need to get court or trustee approval first.
- If you do not make all your plan payments, your case might be dismissed without a discharge.
- The trustee will request and review many documents during the case, requiring close cooperation with your attorney to provide timely.
