If you are drowning in debt but aren’t eligible or shouldn’t file a Chapter 7 bankruptcy, a Chapter 13 bankruptcy might be for you.
This blog will explain what a Chapter 13 bankruptcy is, who qualifies and what the process is like.
Qualifications to File a Chapter 13 Bankruptcy
Only Individuals Can File Chapter 13
Only individuals and sole proprietors can file a Chapter 13 bankruptcy. Corporations and small businesses cannot.
You Must Have Regular Income
An individual must have regular income to file a NJ Chapter 13 bankruptcy. Regular income includes wages, social security, pension, alimony or any other type of regular income. The spouse of a person who has regular income can file jointly with their spouse even if they don’t have regular income.
There is no limit on the amount of income you can have and still file a NJ Chapter 13 bankruptcy. This is different from Chapter 7 which has income limits.
You Cannot Exceed the Chapter 13 Debt Limits
Chapter 13 has debt limits. You cannot file a Chapter 13 Bankruptcy if your total debts (this includes secured and unsecured debts) are more than $2.75 million. These debt limits don’t stop most people from filing a NJ Chapter 13 Bankruptcy. However, if you have too much debt you can file an individual Chapter 11 bankruptcy instead.
How Does Chapter 13 Bankruptcy Work?
1. Completing the Required Credit Counseling Course
In the 180 days before your Chapter 13 bankruptcy petition is filed you must take a credit counseling course from an agency approved by the Department of Justice U.S. Trustee Program. This course can be done online or on the telephone. The certificate of completion must be filed when your Chapter 13 bankruptcy is filed.
2. Filing of the Chapter 13 Bankruptcy Petition
The filing of a bankruptcy petition starts your bankruptcy case. You will receive a case number when your Chapter 13 bankruptcy petition is filed. The filed petition includes many forms including a listing of all of your debts, assets, income and expenses and a statement of financial affairs. These forms must be filled out completely and accurately as they are submitted under penalty of perjury. A fee must be paid to file a Chapter 13 bankruptcy. The Chapter 13 filing fee is currently $ 313.00.
3. Filing of the Chapter 13 Plan
A Chapter 13 plan must be filed with the Bankruptcy Court when your bankruptcy petition is filed. The plan is a document that states how you propose to pay creditors and how much they will be paid. A Chapter 13 plan requires you to make monthly payments to a Bankruptcy Trustee over a period of three to five years.
What Happens After the Chapter 13 Bankruptcy is Filed?
1. An Automatic Stay is put in place
An automatic stay is immediately put in place when the bankruptcy petition is filed. The automatic stay stops most collection activity including harassing creditor phone calls, lawsuits, wage garnishment, car repossession and Sheriff Sales. See our article on the benefits of the automatic stay for more information.
In a Chapter 13 bankruptcy, the automatic stay also applies to co-signors on the debt. As long as the debt is paid under the Chapter 13 bankruptcy plan, creditors cannot take any action against your cosigners who have not filed bankruptcy.
2. Begin Making Your Chapter 13 Plan Payments
You generally start making your monthly Chapter 13 payments the month after your petition is filed even though your Plan has not yet been approved by the Bankruptcy Court.
3. Attend Meeting of Creditors
Approximately 1 month after your Chapter 13 bankruptcy petition is filed, a meeting of creditors, also called a 341 meeting, is held. This meeting is between you and the bankruptcy trustee. Although creditors can appear, they rarely do. Before the meeting, the bankruptcy trustee must be provided with certain documents including proof of income, your last filed Federal income tax return and proof of identity. Currently the meetings are being held virtually. Your Chapter 13 bankruptcy attorney will appear with you at the Meeting. Read our blog on Preparing for Your 341(a) Meeting of Creditors for more information.
4. Debtor Education Course Requirement
After your Chapter 13 bankruptcy is filed you are required to complete an approved educational course on personal finances and file the certificate with the Court. This course can be taken online or on the telephone. This course generally reviews money management, budgeting, and how to use credit wisely.
5. The Chapter 13 Confirmation Process
Your payments are held by the Chapter 13 trustee until the Bankruptcy Court approves your Chapter 13 plan. The approval is made at a Chapter 13 confirmation hearing. At the confirmation hearing the Court will determine whether your plan meets the Chapter 13 requirements. The Court will hear any objections to approval of the plan. If there are no objections by the Trustee or your creditors, the Court may approve the plan without a Hearing. If the Court does not approve your Chapter 13 plan, any payments you made towards the Plan will be returned to you after administrative costs are deducted.
6. How Much Do I Have to Pay in the Chapter 13 Plan?
There are many factors that determine the amount of your monthly Chapter 13 plan payment. These factors include whether your debt is secured or unsecured and whether you are behind on a mortgage or car payments. Usually, the plan payment is determined by how much disposable income you have at the end of every month. Your disposable income is how much you have left over after paying your necessary living expenses such as rent or mortgage, food, cell phone bill, utilities, etc.
7. Certain Debts Have to be Paid in Full in the Chapter 13 Plan
Certain debts must be paid in full in the Chapter 13 plan. These include mortgage arrears, certain tax debt and past due alimony and child support. Payment of these debts can increase your monthly plan payments. Your past due payments can be spread out over the 3 to 5 year Chapter 13 plan period.
Your unsecured creditors also get a share of payments under the Chapter 13 plan. What they get depends upon your disposable income. Your disposable income is how much you have left over after paying your necessary living expenses such as rent or mortgage, food, cell phone bill, utilities, etc.
If there is no disposable income, your unsecured creditors may receive nothing. The more disposable income you have, the more your unsecured creditors get. Generally, you are not required to pay unsecured creditors any interest, late fees, and other penalty charges that you would have owed if you did not file a Chapter 13 bankruptcy.
In some situations, where you have assets in excess of what the law lets you keep, unsecured creditors might be entitled to more, even if your disposable income is low. A skilled bankruptcy attorney can help you understand this situation.
Do You Keep Everything in Chapter 13?
In a Chapter 13 bankruptcy you don’t have to sell any of your assets. You can keep your property but you must stay current on loan payments to keep your home or car or other secured debt. You will also have to catch up on any arrears you have on secured debt in the plan.
How Does a Creditor Get Paid in a Chapter 13 Bankruptcy?
If a Creditor wants to get paid in a Chapter 13 bankruptcy they have to file what is called a proof of claim with the Bankruptcy Court. The proof of claim states what they think they are owed. You can object to the claim if you believe the creditor overcharged you or if you have defenses to owing the money. The Bankruptcy Judge will then decide how much the creditor should be paid.
What Debts are Eliminated When Your Chapter 13 Plan is Complete?
After you complete your Chapter 13 Plan and make all the required plan payments the remaining debts are discharged. You are no longer required to pay debts that are discharged. In order to get a discharge you must have also completed a Debtor Education Course on Personal Finances.
Questions About How Chapter 13 Bankruptcy Works? We’re Here to Help!
The experienced Chapter 13 attorneys at Levitt & Slafkes, P.C. can answer all your questions how Chapter 13 bankruptcy works. Contact us today so one of our attorneys can evaluate your case and discuss the best options available to you. We are here to help! Call us at 973-323-2953, or contact us online
We are proudly designated as a debt relief agency by an Act of Congress. We have proudly assisted consumers in filing for Bankruptcy Relief for over 30 years. The information on this website and blogs is for general information purposes only. Nothing should be taken as legal advice for any individual case or situation.