When your income is too high to qualify for Chapter 7 bankruptcy, or if you’ve got property that you can’t protect in Chapter 7, you may want to look into Chapter 13 bankruptcy as a way to reorganize your finances and regain control.
In Chapter 13 bankruptcy, you get to keep your property, but pay back a portion of your debts over a three to five-year period. Your payments are sent to the bankruptcy trustee, who then distributes the funds among your creditors.
Chapter 13 Or Debt Consolidation?
You can think of this type of case as being like debt consolidation. In both solutions, your bills are put into a big bucket and your payments go to whittle down each one little by little. There are, however, a few differences:
- Debt consolidation will cover only your credit card and store card debts; in bankruptcy, every kind of debt is included and dealt with
- Debt consolidation requires your creditors to agree to repayment amounts; in Chapter 13, the bankruptcy judge decides
- Debt consolidation ends when you’ve paid the debts in full, whereas Chapter 13 may involve repaying only a portion of your debts over time
Who Can File For Chapter 13 Bankruptcy
In order to qualify, you need to have a regular source of income. That means you’ve got to have a job or some other steady stream of money coming into your household. For some, that may mean a pension check or rental income from real estate you own. I’ve worked with people who are unemployed but married to someone who has a job. In any event, there’s got to be money on the table to fund a repayment plan.
You also need to have debts within certain limits. Those limits are adjusted every two years; until April 1, 2012 those limits are $360,475 of unsecured debt and $1,081,400 of secured debt.
The Chapter 13 Plan
The Chapter 13 Plan is the document showing how much of your debt you will be paying, over what period of time, and how you’ll be funding the Plan. Though the U.S. Bankruptcy Code is loose about the requirements of a Plan (yes, that word is properly capitalized), many courts and bankruptcy trustees use their own forms to make things easier.
For example:
- Chapter 13 Model Plan for U.S. Bankruptcy Court, Southern District of New York
- Chapter 13 Model Plan for U.S. Bankruptcy Court, Eastern District of New York (as used by Michael Macco
- Chapter 13 Model Plan for U.S. Bankruptcy Court, Central District of California
How Much You’ll Need To Pay, And Over What Time Period
The amount you’ll need to pay, as well as the length of your Plan, depends on your household income as well as a mixture of your debt load, whether you own any property that would be taken if you were in a Chapter 7, and how your income compares to the state median income for a household of your size.
In other words, and to borrow phrase from Facebook, it’s complicated.
When we sit down and talk, I’ll do some fairly detailed number-crunching to give you a sense of how much you’ll be paying and over what period of time. Those numbers are fluid, though; until the case is filed, the final figures may be higher or lower. It’s like when you take your W-2 forms to the accountant at the end of the year. He can give you a vague idea of your refund (or how much you’ll owe), but he can’t be sure until he’s done the tax forms.
In addition, once the case is filed we may realize your payments need to be higher or lower depending on how much money you owe at the moment your documents hit the courthouse steps. We’ll have to tinker until things are perfect, but no promises will be made unless and until you approve them. After all, this is your case – and your life.
