At the Johnson Law Firm, P.A., we represent individuals and married couples in Chapter 13 bankruptcy matters. We take the time to explain how Chapter 13 works, and how it can help you take control of your financial situation, save your home from foreclosure, or stop creditors from repossessing your motor vehicles. To find out if you qualify for Chapter 7, take our free online evaluation or call (904) 652-2400 to schedule a free consultation.
Chapter 13 Bankruptcy or, “Individual Debt Adjustment,” allows you to develop a plan to repay some, or all of your debt. Any individual or married couple, even if self-employed or operating as a sole-proprietorship, may file for Chapter 13 relief so long as their unsecured debts are less than $307,675 and secured debts are less than $922,975.
Chapter 13 is similar to Chapter 7 in that you file a petition, schedules, and statement of financial affairs with the court. The key differences are the additional filing of the plan and that you have both, “Regular Income” and disposable income to fund the plan. Regular income is a term of art and can include sources of funds other than wages. Generally, you deduct your necessary monthly expenses from your net monthly income to arrive at your disposable income. Your disposable income is then paid to the Chapter 13 Trustee for a period of time (typically three to five years). The Chapter 13 Trustee, in turn, pays your creditors.
Unlike Chapter 7, Chapter 13 allows you to keep all of your property provided you pay the unexempt amount of equity in such property over the life of the plan to your unsecured creditors. Information on the allowable amounts of equity in property can be found on the the Chapter 7 page.
While you are making payments under the plan, creditors are prohibited from starting or maintaining collection efforts against you. Upon completion of the plan, the court issues your discharge and you are relieved from paying the remaining balance of most of your debts.
How long your plan must last is complicated and depends on a number of factors. Generally, if the sum of your income from the six months preceding the filing of your Bankruptcy averages out to be less than the state median income for the corresponding household size, the plan will last only three years.
On the other hand, if the sum of your income from the six months preceding the filing of the Bankruptcy averages out to be greater than the state median, the plan may need to be five years. There are some cases where even if your income from the six months preceding the filing of the Bankruptcy averages out to be more than the state median, the plan can be for less than five years.
Regardless of the income received during the six months preceding the filing of the case, the length of your plan may also need to be longer than three years depending on the amount of non-exempt equity in your real or personal property (as explained above).
These are just a few of the factors that go into determining the length of your plan. We recommend that you speak with the attorney to determine the applicable plan length.
Your first plan payment is due thirty days after the case is filed. During this time, your creditors and the Trustee have an opportunity to object to the plan. If they do not object to the plan, it will be confirmed by the court. Once the plan is confirmed, your creditors are bound to the provisions of the plan.
Chapters 7 and 13 have their own advantages and disadvantages. The most significant advantages of Chapter 13 are the ability to cure delinquent mortgage payments, restructure debts, and retain property you would otherwise lose in a Chapter 7. For example, you can modify the terms of most unsecured debts (e.g., credit cards, utility bills, medical bills, deficiencies on repossessed motor vehicles, etc.) by stopping interest, late fees and over the limit fees. Sometimes, these creditors receive as little as 1% of the outstanding balance.
However, some secured debts and all priority debts (e.g. delinquent taxes, and domestic support obligations) must be paid in full over the life of the plan. Determining which debts can be modified and to what extent is complicated so we recommend that you consult with the attorney to determine whether Chapter 13 is right for you.