If you do not qualify under Chapter 7, you may be able to file for a Chapter 13 bankruptcy. Chapter 13 is a better option for many people because in most cases you are not required forfeit your property. A Chapter 13 bankruptcy is a reorganization of your debt. It is usually based on repaying your creditors over a three to five year period. You will have to file a repayment plan with the bankruptcy court, outlining how you intend to repay your creditors. The exact amount you will have to repay will be based on your income, and your current unpaid debts. Consult with your bankruptcy attorney to make sure you qualify to file under Chapter 13.
Chapter 13 Bankruptcy Qualifications
There are debt limitations with a Chapter 13 bankruptcy. If you currently owe more than $1,010,650 in secured debt, or more than $336,900 in unsecured debt, you do not qualify for a Chapter 13 bankruptcy. In addition, you must meet with a court-approved credit counseling agency prior to filing under Chapter 13.
Chapter 13 Bankruptcy Repayment Plan
Your repayment plan will list your current creditors, and how much you intend to repay each of them. You must pay in full any debts that are considered high priority, such as federal taxes you owe, child support or alimony. In your repayment plan, include all creditors that have debts secured by assets, such as your home or car. Also, list the amount you are currently delinquent for each account.
The amount of income you have left after the priority and secured debt payments are made will be allocated toward your unsecured debts. These can be credit cards, or other debts that do not have collateral pledged. The remaining amount of income may not cover these unsecured debts, however you must make partial repayments if you are able.
Chapter 13 Repayment Plan Length
The length of the repayment plan that you submit to the bankruptcy court will depend on your income. The courts will compare your income to your state median income, and the total amount of your debt payments. If your last six months income average is higher than the state median, you must use a five year repayment plan. If your income is under the state median, you can use a three year repayment plan.
After you have completed your repayment plan, any debts you have left that are eligible will be discharged by the bankruptcy court. Also, you will have to prove to the bankruptcy court that you are not behind on any child support or alimony payments, if applicable. You will have to meet with a court-approved credit counseling agency once you have completed your repayment plan.
If you have a hardship that causes you to fall short of your repayment term, the court will look at your situation and either give you a discharge or extend the repayment plan. You may also be able to use a Chapter 7 bankruptcy to discharge your remaining debts.