Chapter 13 Bankruptcy

A Chapter 13 Bankruptcy is called a wage earner’s plan or a reorganization. Ch 13 can be filed with NO $ money down as long as the debtor has steady income.

Chapter 13 Bankruptcy Plan

A Chapter 13 Bankruptcy differs from a Chapter 7 in several key areas. The first is the Chapter 13 Bankruptcy plan. The plan is essentially a proposal to the court which details who is getting paid back and how much.

The plan begins with stating how much the monthly payment is, how long the plan will be, how much your attorney is getting paid and whether you filed taxes in the last 4 years prior to filing Chapter 13 bankruptcy. The plan will also state whether the debtor is paying child support / alimony and whether there is any arrears. The Chapter 13 Bankruptcy plan will go on to list any mortgages, car loans, tax debts or general secured creditors the debtor may have.

How Long and How Much Is My Plan?

There are two basic tracks that a Chapter 13 Bankruptcy can take: Above Median or Below Median.

Above median: If you are above median, then you are automatically locked into a 5 year Chapter 13 bankruptcy. There is a presumption that you have the means, or the ability to pay back other creditors.
Below median: If you are below median, you have the flexibility of a 3-5 year bankruptcy. There is no presumption of disposable monthly income to other creditors. Your plan payment is generally dictated by how much you owe and how much you can afford to pay back every month. A longer case will have a lower payment, but if you can afford a higher payment, you can have a shorter case. You must be in the case for at least 36 months. This is called the minimum commitment period.

Who Gets Paid What?

Filing fees are administrative fees and get paid back first. Unless you paid the $310 filing fee up front, this must be paid back in your plan. When your case gets filed electronically, there are still folks in the clerk’s office who must review the bankruptcy petition, schedules and related documents. There are several other documents that must be processed as well.
Attorney fees are also administrative fees and will be paid back over the life of the chapter 13 bankruptcy plan.
Priority debts must be paid back in a Chapter 13 Bankruptcy. Generally speaking, a priority debt is a debt that takes priority over other debts. The most common types of priority debts include tax debts and child support. If you have tax debts that qualify as priority debt, child support or separate maintenance – these must be paid back in your bankruptcy.
Secured debts are debts that are secured by physical collateral. The most common types of secured debts are car loans, title loans and mortgages. Absent and arrangement to pay direct, these must be paid back in the Chapter 13 Bankruptcy plan.
Mortgage payments – if you are current on your mortgage when you filed Chapter 13 Bankruptcy, then you will continue to make your payments directly to your mortgage company. If you are behind, the arrears and ongoing payments will be made through the bankruptcy.

What About My Other Creditors?

A Chapter 13 Bankruptcy proposes to pay back your disposable monthly income. Sometimes a Chapter 13 Bankruptcy will pay back 100% of your creditors. Sometimes it will pay back only your attorney fees. It really comes down to who you owe money to and how much you make. A Chapter 13 Bankruptcy is not a punishment, so if you are below the median with no disposable monthly income, then you will probably not pay much to these other creditors.