Chapter 13, as an option to the individual who wants to file for bankruptcy, can generally be considered an attempt to secure enough time to “reorganize” a debt payment plan.  To put it simply, Chapter 13 bankruptcy allows you to manage your debt – with court-given leverage -in such a way that you can more easily pay off your remaining debt obligations.  Chapter 13 lets you accomplish this goal over time. And depending where a person fits in comparison to the medium income for their state, you can still have a great burden – a sizable percentage at least – of your debt discharged. This can also depend on circumstances the court-appointed trustee will look into as your case moves though the bankruptcy process.

Who can qualify for Chapter 13?

This option is a great aid or “tool” for the debtor who is behind in car payments or house payments. These types of obligations can be caught up over an approved time period – generally 3 to 5 years, therefore saving the house from being foreclosed upon or the car from getting repossessed. The plan will also help the debtor with any of past due debts, like alimony or child support.  It even covers recent income taxes. The Chapter 13 plan can also help the debtor in dealing with unsecured creditors. Among those, the most common are credit cards and medical bills.

Calculations will be made as part of the Chapter 13 process, taking into consideration the debtor’s income and necessary expenses to establish how much is available in disposable income to make payments after all other necessary obligations have been met. Naturally, the debtor is expected to devote their disposable income to the prescribed plan, as approved by the court, and any extra money will be used to pay creditors. If a debtor really has no disposable income, arrangements can still be worked out.  The debts can still be discharged, legally, because the person filing for bankruptcy devoted his/her best effort toward paying off those bills as outlined in federal, Chapter 13 guidelines.

What can the “filer” for Chapter 13 Bankruptcy expect?

The Chapter 13 plan must meet several tests in order for it to be confirmed or approved by the bankruptcy court.

First, the plan must be a proposal of ‘good faith.’ Essentially this means that you intend to completely fulfill the terms of the plan and promise not to attempt any misrepresentation of finances or play a part in any fraud against the court. The proposed plan must also satisfy or comply with the “best interest of creditors” test, another step to the process. This test requires that the Chapter 13 plan must provide a plan to pay unsecured creditors approximately the amount they would have had expected to receive under a Chapter 7 bankruptcy. For clarification, in many cases, the different unsecured creditors would have received nothing under the terms of a Chapter 7 case, hence this test can be easily satisfied. Another test in the process is known as the “best efforts” test. This test requires that the Chapter 13 plan establish payments to unsecured creditors, and the guidelines call for paying a specific amount multiplied by the disposable income the debtor is able to produce.

Similar to the Chapter 7 proceedings, the trustee under Chapter 13 will act as the case’s primary point of contact, the debtor will interact regularly with this person.  Within the trustee’s duties, the debtor will look over the proposed plan for payments and they have, when necessary, the authority to challenge the plan in bankruptcy court. This can only be done if they think that a provision is inappropriate.

If the bankruptcy court confirms the plan, the trustee will intercede and facilitate between the debtor and creditors, assisting them in securing payments. Usually, the debtor will be called on to make regular payments monthly to the trustee.  Then, the trustee is responsible for dividing up payment, according to the plan that was set forth in court, and issue payments to the various creditors.

The debtor can expect the ultimate accomplishment of what he set out to do, when choosing the Chapter 13 option: Similar to Chapter 7 cases, when the debtor has fulfilled enough of what the plan required, the court may cancel most or all of their debt.  This is called a “discharge,” and does not apply to all debts. Certain debts will remain outstanding – and still awaiting payment.  For instance, this ruling won’t eliminate a student loan. Anyone considering bankruptcy under Chapter 13 should definitely consider consulting an attorney who can offer an expert’s knowledge about bankruptcy laws.

Restrictions to consider under Chapter 13

The most important restriction within a Chapter 13 bankruptcy is that the debtor is not allowed to incur any more debt, such as a car loan, without the court’s approval. You must also maintain up-to-date insurance on all collateral, like a car or home.