Chapter 13 bankruptcy, sometimes called reorganization bankruptcy, is quite different from Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, most of your debts are wiped out; in exchange, you must relinquish any property that isn't exempt from seizure by your creditors. In a Chapter 13 bankruptcy, you don't have to hand over any property, but you must use your income to pay some or all of what you owe to your creditors over time -- from three to five years, depending on the size of your debts and income.
Chapter 13 bankruptcy isn't for everyone. Because Chapter 13 requires you to use your income to repay some or all of your debt, you'll have to prove to the court that you can afford to meet your payment obligations. If your income is irregular or too low, the court might not allow you to file for Chapter 13.
If your total debt burden is too high, you are also ineligible. Your secured debts cannot exceed $1,010,650, and your unsecured debts cannot be more than $336,900. A "secured debt" is one that gives a creditor the right to take a specific item of property (such as your house or car) if you don't pay the debt. An "unsecured debt" (such as a credit card or medical bill) doesn't give the creditor this right.
Before you can file for bankruptcy, you must receive credit counseling from an agency approved by the United States Trustee's office. (For a list of approved agencies, go to the Trustee's website at www.usdoj.gov/ust and click "Credit Counseling and Debtor Education.") These agencies are allowed to charge a fee for their services, but they must provide counseling for free or at reduced rates if you cannot afford to pay.
In addition, you'll have to pay the filing fee, which is currently $274, and file numerous forms. Of course, if you choose to work with Anderson & Associates on filing your Chapter 13 Bankruptcy we will help you through each step of the process. For a free initial consultation, click here.
The most important part of your Chapter 13 paperwork will be a repayment plan. Your repayment plan will describe in detail how (and how much) you will pay each of your debts. There is no official form for the plan, but many courts have designed their own forms.
Your Chapter 13 plan must pay certain debts in full. These debts are called "priority debts," because they're considered sufficiently important to jump to the head of the bankruptcy repayment line. Priority debts include child support and alimony, wages you owe to employees, and certain tax obligations.
In addition, your plan must include your regular payments on secured debts, such as a car loan or mortgage, as well as repayment of any arrearages on the debts (the amount by which you've fallen behind in your payments).
The plan must show that any disposable income you have left after making these required payments will go towards repaying your unsecured debts, such as credit card or medical bills. You don't have to repay these debts in full (or at all, in some cases). You just have to show that you are putting any remaining income towards their repayment.
The length of your repayment plan depends on how much you earn and how much you owe. If your average monthly income over the six months prior to the date you filed for bankruptcy is more than the median income for your state, you'll have to propose a five-year plan. If your income is lower than the median, you may propose a three-year plan. (To get the median income figures for your state, go to the United States Trustee's website, www.usdoj.gov/ust, and click "Means Testing Information.")
No matter how much you earn, your plan will end if you repay all of your debts in full, even if you have not yet reached the three- or five-year mark.
If for some reason you cannot finish a Chapter 13 repayment plan -- for example, you lose your job six months into the plan and can’t keep up the payments -- the bankruptcy trustee may modify your plan, or the court might let you discharge your debts on the basis of hardship. Examples of hardship would be a sudden plant closing in a one-factory town or a debilitating illness.
If the bankruptcy court won’t let you modify your plan or give you a hardship discharge, you might be able to convert to a Chapter 7 bankruptcy or ask the bankruptcy court to dismiss your Chapter 13 bankruptcy case (you would still owe your debts, plus any interest creditors did not charge while your Chapter 13 case was pending). For information on your alternatives in this situation, see Chapter 13 Bankruptcy: Keep Your Property & Repay Debts Over Time, by Stephen Elias and Robin Leonard (Nolo).
Once you complete your repayment plan, all remaining debts that are eligible for discharge will be wiped out. Before you can receive a discharge, you must show the court that you are current on your child support and/or alimony obligations and that you have completed a budget counseling course with an agency approved by the United States Trustee.
For more information, take advantage of a free intial consultation with the experienced Minnesota bankruptcy lawyers at Anderson & Associates, LLC. You can arrange a meeting or have your questions answered by calling 651-464-8510 or contact us via email.
Forest Lake, MN Office
1650 11th Avenue SW Suite 203
Forest Lake, MN 55025
Map & Directions
Phone: (651) 464-8510
Toll Free: : (888) 902-8529
Learn More About Bankruptcy
The Forest Lake, Minnesota bankruptcy lawyers of Anderson & Associates, L.L.C., represent people from our local area (Hugo, Lindstrom, Chisago City, Wyoming, Lino Lakes, Centerville, Shoreview) as well as Minnesota communities throughout the Twin Cities and greater Minnesota.