A Chapter 13 bankruptcy is court supervised repayment plan of a certain percentage of your debt. The amount which must be repaid is contingent on the amount of income you earn as well as the amount of assets you possess. Once you complete the repayment plan you receive a discharge of your remaining debt resulting in a debt free fresh start.
The Chapter 13 process usually takes approximately 3-5 years from filing to discharge.
The Chapter 13 case is initiated through the submission of a proposed repayment plan with the court. The repayment plan is based on your monthly disposable income. Once the plan is submitted you will be required to attend one meeting with the UT Trustee. The meeting will be conducted by the Trustee assigned to your case and you will be accompanied by your attorney and an interpreter, if necessary. This meeting lasts between 10-20 minutes and is a generally a review of all your income and expenses. If the Trustee does not object to the plan it will be submitted to the court for confirmation.
Once confirmed your repayment plan begins. During active bankruptcy you will send your scheduled payments to a designated address. Before the closure of your case you are required to completer your debtor education course. Once the course is completed and the certificate is file you will receive your discharge. It is important to note that during your active bankruptcy you will be required to get court permission if you wish to buy, sell or refinance any substantial assets such as a vehicle or real estate.
Qualifications to file
Income
In order to qualify for a Chapter 13 bankruptcy, you must earn an income. Because a Chapter 13 bankruptcy is a repayment plan, you must earn an income that exceeds your monthly expenses by at least $100 monthly. A careful analysis of your monthly expenses and your debt will provide the exact amount of income required to qualify for a Chapter 13 bankruptcy.
In order to be eligible for a Chapter 13 bankruptcy you must provide the trustee with a copy of your last 4 years of federal and state tax returns. You also need to provide proof of your income for the last six months: pay-stubs or if you are self-employed a profit and loss statement for the last 6 months.
Debt
In order to qualify for a Chapter 13 bankruptcy, you cannot have debt in access of the levels listed below.
- Unsecured debt must be less then or equal to $336,900
- Secured debt must be less than or equal to $1,010,650
The Bankruptcy Process
Debtor Counseling and Education Requirement
In order to file a Chapter 13 bankruptcy you must complete the debtor counseling course (the procedure is the same for a Chapter 7 bankruptcy). Once our office has received the certificate of completion of this course your bankruptcy documents including you proposed repayment plan can be submitted to the court to initiate your case.
Our office will gladly provide additional information and assistance with this requirement.
Automatic Stay
Similarly to a Chapter 7 bankruptcy filing, the filing of a Chapter 13 bankruptcy case creates an automatic stay. The automatic stay is essentially a court imposed injunction which stops all collection activity by creditors. This means that once your case is filed all creditor harassment, and or any collection will cease. If any creditor violates the automatic stay you may be entitled to sanctions.
The repayment plan
Your attorney will submit to the court a proposed repayment plan based on your income and expenses. The plan payment and the duration of the plan is determined by your income and your expenses. Specifically, your income will be compared to the state median. The state median income amounts are the same for chapter 7 and 13 bankruptcy. If your income is above the median amount your repayment plan will be a 5 year repayment plan. If on the other hand your income falls below the state median income, then you will be in a 3 year repayment plan. The absolute minimum that must be paid to unsecured creditors over the duration of the plan is the amount that the creditors would have received under a Chapter 7 bankruptcy. Secured debt must be paid in full and must be taken into account when determining your disposable monthly income and ultimately you payment amount. The minimum payment in a Chapter 13 bankruptcy is $100 per month.
Dischargeability
Chapter 13 bankruptcy eliminates most debts:
- Credit Card Debt is eliminated
- Mortgages and equity lines on homes surrendered are eliminated
- Vehicle loans on vehicles surrendered are eliminated
- Medical Bills are eliminated
- Personal loans and personally guaranteed loans are eliminated
- Judgments and some liens are eliminated
- Personal guarantees on business loans are eliminated
- Income taxes for periods 3 years preceding the bankruptcy filing which were timely and properly filed are eliminated
Some debts will not be discharged:
- Most student loans are non dischargeable
- Fines and fees owed to the government are non dischargeable
- Child support and alimony is non dischargeable
- Taxes assessed for periods less then 3 years preceding a bankruptcy filing or taxes which were not timely or properly filed are non dischargeable
- Association dues assessed for periods post bankruptcy filing are non dischargeable
- Debt incurred through fraud or incurred without the intent to be paid are non dischargeable
- Debts for certain purchases or cash advances incurred shortly before the bankruptcy was filed are non dischargeable
- Secured loan/ liens against property retained will no be discharges as to that property so if you wish to retain that property you will be required to continue making payment
Post Discharge
Rebuilding your credit score
Once your Chapter 13 case is discharged you should focus on rebuilding your credit. Approximately 3 month after discharge you should check your credit to make sure all debts discharge in bankruptcy are properly reflected on your credit report. If any errors exist you should contest these errors with the 3 major credit bureaus.
Checking Your Credit Report
Credit is very important. It determines the rate at which you can borrow money. So maintaining a good credit score is essential to being financially successful. Each person is entitled to one free copy of your credit report once every year. The three major national credit bureaus are:
- Equifax, P.O. Box 740241, Atlanta, GA 30374-0241; (800) 685-1111
- Experian (formerly TRW), P.O. Box 2002, Allen, TX 75013; (888) EXPERIAN (397-3742)
- Trans Union, P.O. Box 1000, Chester, PA 19022; (800) 916-8800
An Annual Free Credit Report is available at https://www.annualcreditreport.com/cra/index.jsp
Correcting Errors
Since your credit report directly affect the amount of credit you can obtain and the costs associated with borrowing money, it is very important to make sure your credit report is accurate. Your creditors have an obligation to only report accurate information on your credit report. If there are mistakes on your credit report you should notify the above referenced credit bureaus and demand a correction.
Your request should be in writing. The letter should contain information which identifies you such as your social security number, date of birth, first and last name and current address as well as your signature. Further you must explain what information is inaccurate and provide proof that it is inaccurate. Generally, the credit bureau will investigate the disputed information within 30 days of your request. You will receive a report stating the outcome of the investigation.
Click here to download a sample letter for disputing your credit report (MS Word document, 27KB).
