A Chapter 13 Bankruptcy is an adjustment of debts of an individual (including married couples) with regular income. Chapter 13 allows a debtor to keep property and pay debts over time, usually three to five years. A chapter 13 bankruptcy is also called a wage earner’s plan. The Debtor proposes a repayment plan, or Chapter 13 Plan which will repay some or all of the Debtor’s debts. Upon completion of the Plan, the Debtor receives a discharge of debts. The plan must be approved by the Court. Upon approval of the Plan, the Debtor makes payments to the Chapter 13 Trustee and the Trustee pays out the month to the creditor’s according to the Plan.
The length of the Plan is determined by comparing the Debtor’s income to the applicable median income. If the Debtor’s income is below the median income then the Plan length will be three years, if it is more than the median then the plan will be five years. The comparison of the Debtor’s income to the median is very similar to the chapter 7 means test. There are exceptions to the length of the Plan on an individual basis as determined by the Court. A Chapter 13 allows a Debtor to make up missed payments on secured debt such as missed house or car payments. This allows the Debtor to save those assets by repaying the delinquent payments over the length of the Plan. Taxes may also be repaid over the length of the Chapter 13 Plan.
If a Debtor has more than one secured debt on their home, and the first mortgage is greater than the value of the home, then it may be possible to strip the subsequent debts from the asset and have those debts included with the unsecured debts. A Debtor may cram down the debt on a motor vehicle to the fair market value in a Chapter 13 Plan. Debts that are not dischargeable in a Chapter 7 may be discharged in a Chapter 13 upon completion of the Plan. There are eligibility requirements for filing a Chapter 13 which include having a regular income, Secured and unsecured debt limits and the length of time since filing a prior bankruptcy. A Chapter 13 Bankruptcy is very complex and a Debtor contemplating filing should seek the advice of an Sacramento Bankruptcy Attorney.