Anyone can experience a financial hardship at any time. Many individuals seek Chapter 13 relief after losing their job, incurring medical bills from an illness or injury, losing a spouse, going through a divorce, or over-using credit. Bankruptcy courts do not judge individuals who need help. The bankruptcy system is in place to provide debt relief and a fresh start for individuals who are unable to pay their debts for any reason.
Is a Chapter 13 Bankruptcy Right for You?
The first step in the Chapter 13 process is to decide if filing Chapter 13 is right for you. Chapter 13 involves reorganizing your debts into an affordable monthly plan. Through a Chapter 13 repayment plan, you can:
- Get rid of unsecured debts you cannot pay;
- Catch up mortgage payments to save your home;
- Afford to keep your vehicle;
- Pay debts that are not dischargeable in a Chapter 7 case, such as most taxes, alimony, and child support;
- Protect your retirement savings and equity in assets; and,
- Protect your property from the court and your creditors.
However, you are committed to a three to five-year bankruptcy repayment plan when you file a Chapter 13 case. During that time, you cannot incur new debt without court approval, including applying for a mortgage or car loan. You cannot sell or transfer assets without court approval. You must report increases in income and you may be required to turn over your tax refunds to the Chapter 13 trustee as part of your bankruptcy plan.
Because filing a Chapter 13 case is a complex undertaking, you may want to consider hiring a bankruptcy attorney to help you with the filing. Calculating the Means Test and the Chapter 13 plan can be complicated. Also, there could be special circumstances related to your case that could be an issue if you do not have an attorney’s guidance before filing your bankruptcy petition.
If you choose to file a Chapter 13 case without an attorney, you may want to read the information about filing bankruptcy without an attorney provided by the United States Courts.
If you want assistance comparing debt-relief options, including locating a bankruptcy attorney in your area that can provide additional assistance, you can try our Chapter 13 calculator.
Filing a Chapter 13 Bankruptcy Case
If you decide to proceed with a Chapter 13 case, it can be helpful to know and understand the basic steps involved in the Chapter 13 process.
Step One: Do You Qualify for Chapter 13 Bankruptcy?
You must have a steady income to qualify for Chapter 13. That income must be sufficient to repay some of your debts while you continue paying your current living expenses and any debts paid outside of the bankruptcy plan.
To determine if you qualify for Chapter 13, you need to complete the Means Test, a bankruptcy form that calculates your disposable monthly income. Your disposable monthly income is the amount of money after living expenses you can use to repay debts. The results of the Means Test are a factor in the calculation of your Chapter 13 plan payment.
If your average income is below the median income for your state or your disposable income is negative or very low, you may want to consider talking to a reputable bankruptcy attorney about filing bankruptcy under Chapter 7. You may also consider reading the Chapter 7 Bankruptcy process.
Step Two: Complete Your Credit Counseling Course
Each person who files Chapter 13 must complete two bankruptcy courses. The Credit Counseling Course must be completed before you file your bankruptcy case. You can find a list of approved providers on the United States Trustee’s website. The courses are offered online, take about 90 minutes to complete, and cost between $15 to $50, depending on the provider you choose.
Step Three: Completing the Remaining Bankruptcy Forms
If you qualify for Chapter 13, you must complete the remaining Chapter 13 bankruptcy forms. Official bankruptcy forms are available for download from the United States Courts. The bankruptcy forms include information related to:
- Real estate that you own
- Your personal property
- Bankruptcy exemptions you claim
- Your creditors and debts
- Monthly Income
- Monthly Expenses
- Recent financial affairs, including income for three years, payments to creditors within a certain period, gifts and transfers of property, business interests, and other matters related to your finances and property
The bankruptcy forms must be completed accurately and completely. Your signature on the forms indicates the information contained in the forms is correct and true to the best of your knowledge under penalty of perjury.
Step Four: Calculate Your Chapter 13 Bankruptcy Plan
There is an official federal form for the Chapter 13 repayment plan available online. However, many bankruptcy courts have developed a local Chapter 13 plan for use in that specific jurisdiction. You should check with the bankruptcy court where you live to determine if you need to use a local bankruptcy form for the Chapter 13 plan.
The United States Courts provide an overview of Chapter 13, including information regarding the Chapter 13 plan. It is a good idea to read this information before you begin calculating your Chapter 13 plan. We offer a Chapter 13 calculator that can help you estimate your minimum plan payment.
However, calculating a Chapter 13 plan payment can be very complex, especially if you owe back taxes, are behind on mortgage payments, owe more money on your vehicle than it is worth, or have substantial property that exceeds the bankruptcy exemptions.
Most individuals find that hiring a bankruptcy attorney is wise to ensure they do not pay more than necessary through their Chapter 13 plan.
Step Five: Filing Your Chapter 13 Bankruptcy Case
When all forms are complete and you have your certificate of completion for your Credit Counseling Course, the forms and the certificate must be filed with the bankruptcy court where you live. You must pay the required filing fee and also file your proposed Chapter 13 plan, which must be served on all creditors and parties in interest.
Step Six: Assignment of Trustee and 341 Hearing
A Chapter 13 trustee is assigned to your case and the court schedules a 341 Hearing (First Meeting of Creditors). At the 341 Hearing, you answer questions about your finances and your bankruptcy forms for the Chapter 13 trustee. Your answers are given under oath. Creditors may appear at the hearing to ask questions, but that is rare. The hearing usually takes less than 15 minutes to complete.
Step Seven: Confirmation Hearing
A confirmation hearing is also scheduled in a Chapter 13 case. The hearing is held before a bankruptcy judge. If the Chapter 13 trustee or other party objected to the terms in your Chapter 13 plan, the hearing is held to resolve the objection. In many cases, your bankruptcy attorney works out the objection before the hearing and files an amended plan, if necessary, to resolve the matter.
Step Eight: Complete Your Debtor Education Course
The second bankruptcy course, the Debtor Education Course, must be completed before you can receive a bankruptcy discharge. It is also available online, usually from the same company that provided your Credit Counseling Course. It is wise to complete the second course as soon as possible after filing your Chapter 13 case so that you do not forget about the course. You cannot receive a discharge without completing this second bankruptcy course.
Step Nine: Continue Making Your Chapter 13 Payments
You continue making your Chapter 13 plan payments to the trustee as required by your plan. When you pay your final Chapter 13 payment, the Chapter 13 trustee conducts an audit and issues a final report. Provided that you completed your Debtor Education Course and filed the required certificate of completion, the Clerk of Court issues an Order of Discharge and closes the case.
Most Chapter 13 bankruptcy cases take at least five years to complete. The above process is based on a simple Chapter 13 case that does not require filing special motions or other petitions with the court. If you have questions about Chapter 13 cases, we encourage you to contact us to learn more about our services related to debt relief and bankruptcy.