Chapter 13 Bankruptcy

In exchange for debt relief, those who file for Chapter 13 bankruptcy pay their disposable income to their creditors over the course of a three- to five-year repayment plan. At the end of the plan, whatever debts remain will be cancelled.

This type of bankruptcy is ideal for people with a stable income and secured debt such as mortgages and financed cars because it allows them to retain their assets during repayment.

Eligibility for Chapter 13 Bankruptcy

There are certain requirements an individual must meet in order to be eligible for Chapter 13 bankruptcy:

  • You must meet the debt limits: In Chapter 13 bankruptcy, secured and unsecured debts cannot exceed certain amounts:
    • An example of a secured debt would be a house or car. Creditors have the right to take property if you do not pay back what you owe.
    • An example of unsecured debt would be a credit card or medical bill. Creditors cannot take unsecured debt if you fail to pay back what you owe.
    • An individual must have no more than $1,184,200 in secured debt and $394,725 in unsecured debt to meet the limit. The amount of assets will be calculated in a claim.
  • You must have a steady income: When you file for Chapter 13 bankruptcy, you have to prove to the Court that you can afford to meet both your monthly household expenses and pay into a repayment plan. If your income is too low, the Court will not approve your proposed repayment plan.
  • You cannot be a business: Because Chapter 13 bankruptcy is not available for businesses, you must be an individual to file. However, business-related debts that you are personally responsible for will be a part of your repayment plan.

Steps for Filing Chapter 13 Bankruptcy

1. Find a bankruptcy attorney.
2. Provide the following to the court within 14 days of filing a petition:

-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
-A breakdown of the debtor's monthly living expenses
-Tax information

3. Propose a repayment plan to be approved by the Court. The Court will review your debts and income statements, meet with creditors, and schedule a hearing to decide whether or not the plan is acceptable.

Repayment Under Chapter 13

Under Chapter 13 bankruptcy, a debtor will repay the following:

  • Priority debt: Chapter 13 requires filers to pay priority claims in full. Examples include child support and alimony, student loans, and unpaid taxes.
  • Secured debt: Secured debts such as a house or a car must be paid in full in Chapter 13 bankruptcy, either through the repayment plan or outside the repayment plan.
  • Unsecured debt: Unsecured debt, such as credit cards and medical bills, may have to be repaid depending on your disposable income.

While bankruptcy can give financial relief to those in debt, it will penalize the debtor's credit. A Chapter 13 bankruptcy will be listed on the debtor's credit report for 7 years.

We're Here to Help

If you are considering filing for bankruptcy, contact our attorneys today. We have office locations throughout the Lehigh Valley, and we practice law in both Pennsylvania and New Jersey.

Call our main office at 908-454-3200, or you can reach us online with any questions you may have. We are here to help you regain financial stability.