Chapter 13 Bankruptcy Basics

In a Chapter 13 bankruptcy, you keep your assets, but continue paying on your debts over a period of 3-5 years.

This is sometimes called “reorganization bankruptcy” because your debts are in effect “consolidated” by the bankruptcy trustee, and some debts may even be extended to the end of the bankruptcy period, resulting in smaller payments. Some debts (“priority debts”) must be paid in full, while others may be paid only in part.

Not everyone qualifies for a Chapter 13 bankruptcy, particularly those whose disposable income is deemed insufficient to repay their debts. Additionally, as of 2014, secured debts may not exceed $1,149,525 and unsecured debts may not exceed $383,175, regardless of disposable income level.

If an individual is approved for a Chapter 13 bankruptcy, he or she must create a repayment plan to be approved and supervised by the courts. The debtor’s disposable income (income that remains after essential expenses have been paid) must be applied toward repayment of the debts. In addition, the individual under Chapter 13 bankruptcy may not take on any new debt without prior approval of the bankruptcy trustee.

Despite these restrictions, Chapter 13 can have an advantage over Chapter 7 bankruptcy, in that the debtor is allowed to retain his or her assets while the creditors are disallowed from pursuing payment (an “automatic stay”). Unlike Chapter 7, creditors are also barred from going after any cosigners or guarantors during the reorganization period, since payments are still being made. Certain debts that are not dischargeable under a Chapter 7 may also be dischargeable under a Chapter 13, such as those created by a divorce settlement, loans from a retirement plan, or court fees.

Before you decide to file for bankruptcy, always seek legal counsel and make sure you understand the difference between the various filing methods and their ramifications on you, your family, your business, and any cosigners or guarantors for your debts. Attorney Dunlap has over 20 years experience in bankruptcy law and can explain the process in plain English, while helping you navigate through the experience from beginning to end.

If you’re facing the prospect of bankruptcy, call us today for a free consultation at (901) 320-1603.