What Is A Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is a method for individuals who are wage earners and have regular income to reorganize their debts and pay a percentage distribution to creditors over time. The required Chapter 13 Plan payment will be determined based on the amount of the individual’s disposable income, which is calculated as a result of the means test and the debtor’s budget. Chapter 13 bankruptcy is utilized primarily for individuals who want to have excess equity above the exemptions, but are also being forced to pay some money to their creditors. If they want to keep excess equity, then they will have to pay that value to creditors. This is known as the “best interest of creditors” or the liquidation test. In other words, the individual must pay their creditors at least as much as the creditors would receive in a theoretical liquidation.
Chapter 13 bankruptcy is very often used for individuals who have multiple payments in mortgage arrears and want to structure payment of those over the life of a three or five-year plan. In essence, Chapter 13 bankruptcy is a method of personal financial reorganization. It is only available for individuals or sole proprietorships. Businesses that are corporations and limited liability companies are not eligible.
What Requirements Must Be Met In Order To File For Chapter 13 Bankruptcy?
In order to be eligible to file for Chapter 13 bankruptcy, an individual must have a regular income, non-contingent liquidated unsecured debts of less than $419,275, and non-contingent liquidated secured debts of less than $1,257,850. If someone owes more to unsecured creditors or secured creditors, then their case could promptly be the subject of a motion by a creditor or the Chapter 13 trustee to dismiss for having debt in excess of the jurisdictional requirements.
For a Chapter 13 bankruptcy, the individual must also file a Chapter 13 plan that meets the elements of section 1325 of the bankruptcy code and be filed in good faith. The plan must be feasible, meaning that it must be shown that the debtor can fund that which is necessary to be paid under the requirements of the Bankruptcy Code.
What Types Of Debts Are Discharged In A Chapter 13 Bankruptcy?
The significant changes to the Bankruptcy Code effective as of October 2005 significantly revised what had been described the bankruptcy “super discharge “in Chapter 13. Debts that are characterized as equitable distribution claims are potentially dischargeable in Chapter 13 bankruptcy. The individual must devote all disposable income to creditors in good faith over a three to five-year period.
What Debts Are Not Forgiven In A Chapter 13 Bankruptcy?
Tax debts, municipal fines and penalties, criminal restitution obligations, domestic support obligations, and debts created as a result of causing injury to another person due to intoxicated driving are not dischargeable. Additionally, fraud claims are not dischargeable if pursued by a creditor by the filing a Complaint in the Bankruptcy Court. This means that if there is an adversary proceeding claiming a debt was incurred by fraud, then that would have to be addressed as a non-dischargeable debt.
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