A Chapter 13 bankruptcy is also known as a “wage earners plan.” This form of bankruptcy allows individuals with regular incomes to establish plans to repay their debts. During the course of a Chapter 13 case, creditors may not, without prior permission from the Bankruptcy Court, start or continue their collection efforts. A chapter 11 bankruptcy is also a form of bankruptcy which generally involves a repayment plan, but Chapter 13 bankruptcy proceedings are less complex and move along more quickly than Chapter 11 filings.
Requirements for Chapter 13 Bankruptcy
Under Chapter 13 of the Bankruptcy Code, debtors propose an installment plan to repay all or some of their debts during a period of either three or five years. If your monthly income is under the current New Jersey state median and you do not own any real property with equity, your installment plan will typically be three years. Individuals with real property or incomes greater than the state median must have five-year repayment plans.
Under federal law, any individual, even those self-employed or running an unincorporated business, may qualify for Chapter 13 relief as long as their secured and unsecured debts do not exceed the amounts permitted by the Bankruptcy Code. As these amounts change periodically, it is critical to discuss these thresholds with your attorney. Chapter 13 is for individulas only; business entities, corporations and partnerships do not qualify for Chapter 13 bankruptcy.
Bankruptcy proceedings are comprised of dischargable and nondischargeable debts. In a “straight” Chapter 7 case, you are not required to pay back nondischargeable debts, and creditors may not demand payment. Nondischargeable debts are those you’re still responsible for after any bankruptcy proceeding.
In a Chapter 13 case, a repayment plan is proposed through which you may repay some debts in full, and others in part. The remainder of your dischargeable debt will be discharged at the conclusion of your plan (three or five years). Nondischargeable debts include student loans, spousal support or alimony, child support, certain legal fees, and certain taxes or other money owed to a government agency.
Can I Keep Property?
In a Chapter 13 arrangement, you may be able to keep the property you own, as long as you are making satisfactory payment arrangements. This includes real estate, your car, tools for your business, and household furnishings.
How Chapter 13 Bankruptcy Works
Begin by hiring a qualified attorney, who will review your legal options and help you decide which bankruptcy process (if any) is right for you. All bankruptcy cases begin by the filing of a “petition for relief” in the jurisdiction where you reside or own real property. With your petition for relief, you must also file a schedule of your assets and liabilities, your current income and expenses, your contracts and leases, and other information about your financial affairs.
As soon as your petition for relief is filed, a bankruptcy trustee is appointed to administer your case which includes determining all of your liabilities and examine your assets.
Next, there will be a Meeting of Creditors, which is required by Section 341(a) of the Bankruptcy Code, where creditors are permitted to be present evidence why they should be paid. Creditors rarely appear for or participate in the Meeting of Creditors, however, and the real purpose of this meeting is for the trustee to interview the debtor(s) and determine if further investigation of the debtor(s) assets and liabilities is necessary.
Some individuals who are having trouble obtaining a loan modification their home mortgage and who qualify for a Chapter 13 bankruptcy proceeding, will also utilize the Loss Mitigation process available through the New Jersey Bankruptcy Court.
Loss Mitigation is a court-supervised loan modification process. It is far more likely to yield desirable results, stop foreclosure, and put your mortgage payments bank on track, than an ordinary, out-of-court loan modification process.