Chapter 13

Chapter 13: Reorganizing And Repaying Debts

Unlike Chapter 7, which primarily focuses on discharging debt, Chapter 13 bankruptcy focuses on restructuring and repaying debts. As an individual filing Chapter 13 bankruptcy, you would be able to keep your property and pay creditors through a three- to five-year repayment plan approved by the court.

Unfortunately Chapter 13 is not for businesses, unless your business is a sole proprietorship or partnership, where an individual filer has some liability for the business debts.

At Joshi Law Group, we help individuals and couples seek debt relief through bankruptcy and other means. Keep reading to learn if Chapter 13 may be right for you.

Recently, more and more individuals with student loan debt are utilizing Chapter 13 bankruptcies to address and negotiate their student loan debts. An individual may be able to utilize their Chapter 13 bankruptcy discharge to negotiate the balance of their student loan debt directly with the Department of Education.

How Does It Work?

Chapter 13 is suited to individuals or married couples who have overwhelming debt but who also have a steady source of income and/or missed payments on real estate or other secured property. In order to qualify for Chapter 13, both income and debt levels will be assessed to ensure that you have the capacity to repay debts once they have been reorganized.

You will work with a bankruptcy trustee to examine all debts and categorize them, which will determine when and how they are repaid. The most important debts, called priority debts, would include things like child support, spousal support and certain taxes. Chapter 13 bankruptcy can allow a person to repay these types of debts through a Chapter 13 plan stretched over 3 to 5 years instead of as a lump sum.

Secured debts (such as your home loan and car loan) need to remain in good standing in order for you to avoid repossession or foreclosure, so these will also need to be paid regularly throughout your repayment period. However, if you are behind on secured debts, a Chapter 13 bankruptcy could afford you a tool to repay the delinquent payments through the Chapter 13 plan over three to five years. Chapter 13 also allows you to surrender a car or property and the secured debt attached to it. Sometimes, this is the only reason an individual/couple files for Chapter 13 bankruptcy.

The fate of your unsecured debts (credit card bills, medical bills, etc.) is somewhat more flexible. Your repayment plan will likely include payments to these creditors for a certain period of time or up to a certain dollar amount. If those obligations are met, the trustee may be able to negotiate discharge of the remaining balances for each.

Chapter 13 bankruptcy also has other useful features that are not available through Chapter 7 bankruptcy, such as certain types of lien avoidance including some equity lines or junior mortgages, tax liens, judicial liens and other statutory liens.

Needless to say, Chapter 13 bankruptcy is a beneficial but complicated area of law. We highly recommend consulting with our experienced bankruptcy attorneys before navigating through or filing for Chapter 13 bankruptcy.

Eligibility Requirements For Chapter 13 Bankruptcy

Here are the requirements for Chapter 13 at a glance:

• You must be filing as an individual or couple (not a business)
• You must have sufficient income to repay certain debts in full and certain debts on a percentage basis
• You must not have too much debt (as determined by the Bankruptcy Code)

If you have additional questions or want to learn more about Chapter 13.