Chapter 13 bankruptcy is like Chapter 11, which applies to businesses. In both cases, the petitioner submits a reorganization plan that safeguards assets against repossession or foreclosure and typically requests forgiveness of other debts. They both differ from the more extreme Chapter 7 filing, which liquidates all assets except those specifically protected.
No bankruptcy filing eliminates all debts. Child support and alimony payments aren’t dischargeable, nor are student loans and unpaid taxes. But bankruptcy can clear away many other debts, though it will likely make it harder for the debtor to borrow in the future.
Being Eligible for a Chapter 13
To be eligible to file for Chapter 13 bankruptcy, an individual must have no more than $394,725 in unsecured debt, such as credit card bills or personal loans. They also can have no more than $1,184,200 in secured debts, which includes mortgages and car loans. These figures adjust periodically to reflect changes in the consumer price index.
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The cost to file Chapter 13 bankruptcy consists of filing fees and fees charged by a bankruptcy attorney. Applicants need to pay a filing fee to the bankruptcy court, as well as a miscellaneous administrative fee. They also need to provide:
- A list of creditors and the amount of their claims
- Disclosure of the amount and sources of the debtor’s income
- A list of the debtor’s property, as well as an accounting of all contracts and leases in the debtor’s name
- A breakdown of the debtor’s monthly living expenses
- Tax information, including a copy of the debtor’s most recent federal tax return and a statement of any unpaid taxes.
Chapter 13 petitioners must stipulate that they haven’t had a bankruptcy petition dismissed in the 180 days before filing due to their unwillingness to appear in court. Also, anyone seeking bankruptcy protection, must undergo credit counseling from an approved agency within 180 days of filing a petition.
Shortly after filing, the debtor also must propose a repayment plan. A bankruptcy judge or administrator will hold a hearing to determine whether the plan meets the requirements of the bankruptcy code and is fair. Creditors may raise objections to the plan, but the court has the final say.
Debtors can arrange to make up delinquent payments over time, but under Chapter 13 rules, all new mortgage payments from the time of filing must be made on time.