Chapter 13 Bankruptcy FAQs

What is a Chapter 13 Bankruptcy?

       A Chapter 13 Bankruptcy is for families that have assets, value to their home or earn above the average family income for the county in which they live.

       A Chapter 13 Bankruptcy allows you to keep your assets while under the protection of the Bankruptcy Court.

       In exchange for keeping your assets, the Bankruptcy Court requires a Chapter 13 Debtor to submit to a “Plan” over the course of 3-5 years.  The Plan will allow you to catch up on your mortgage payments and automobile payments while stopping your creditors from all collection activities.

       Under a Chapter 13 Plan, Debtors repay their unsecured creditors only what they can afford to pay based upon their income and expenses.  “Unsecured” debt includes credit cards, medical bills, personal loans or debts owed on car loans or mortgages once the car has been repossessed, or the home has been sold in foreclosure.  

“Unsecured” debt is  repaid  from 5% to 100% over a 3-5 year period.  Once a Chapter 13 Plan is completed, all remaining debt is eliminated (“discharged”).

       As soon as you file a Chapter 13 Bankruptcy, the Bankruptcy Court imposes an injunction on all of your creditors called the “Automatic Stay”.  The Automatic Stay prohibits creditors from any collection activities, including lawsuits, wage garnishments, collection calls, collection letters, bank restraints, foreclosures or repossessions.

Which of my debts will not be eliminated?

       “Non-dischargeable” debt under the Bankruptcy laws includes recent income taxes, student loans, alimony, child support, restitution or compensation ordered by a Criminal Court, civil judgments for injuries due to intentional torts or driving while intoxicated, and any debts incurred by fraud.

What is the Means Test Calculation required by the Bankruptcy Code?

       In order to qualify for a Bankruptcy, the Bankruptcy Code requires that you complete a Statement of Current Monthly Income and Means Test Calculation.  These are mathematical calculations designed to ensure that you are eligible for the Bankruptcy. 

Essentially, the Statement of Current Monthly Income and Means Test Calculation will determine your disposable monthly income and this sum will be used by the Bankruptcy Court to determine how much you must repay your unsecured creditors during your Chapter 13 Plan.

       In a Chapter 13 Bankruptcy case, you will then have to submit a Chapter 13 Plan to the Court to prove to the Court that you can maintain your assets and pay your creditors over a three to five year period (even at a reduced rate).  Then, a “Confirmation Hearing” before the judge will be scheduled.  At this hearing, the Bankruptcy Trustee and the Court will either confirm your Plan, recommend changes to your Plan, or dismiss your case.  The Confirmation Hearing usually lasts from five to fifteen minutes.  In almost all cases, your Bankruptcy attorney and the Bankruptcy Trustee will have communicated with one another before the hearing to determine what changes, if any, to your Plan are necessary.

       In a Chapter 13 case, once your Plan is confirmed by the Court, then you will have three to five years to complete your Chapter 13 Plan.  At the end of the three to five year period, you will receive a discharge of all remaining debt.

Can I keep my bank account?

        You may keep as much money as you wish in your bank account.  The reason for this is that under a Chapter 13 Plan, you are paying your creditors (albeit at a reduced amount).  Therefore, the Bankruptcy Court does not touch a Debtor’s assets in a Chapter 13 case.

Can I keep my pensions, IRA’s and retirement accounts?

       Under the Bankruptcy law, IRA’s, pension or profit sharing plans, or other retirement plans protected as Individual Retirement Accounts, are exempt from your Bankruptcy case.  Therefore, you can hold unlimited funds in these protected accounts, even though you are filing a Chapter 13 Bankruptcy.

May I keep my house under a Chapter 13 Bankruptcy?

       Yes.  Under a Chapter 13 Plan, you must prove to the Court that you have sufficient income to once again start paying your monthly mortgage payments.  You must also prove to the Court that you can pay the past due amounts to your mortgage lender (“arrears”), spread out over a 3-5 year period, with no interest.  As long as you can restart your monthly mortgage payments, and pay the arrears over 3-5 years, then your mortgage lender is prevented from foreclosing on your home.

Am I eligible for a Chapter 13 Bankruptcy?

       To file a Chapter 13 Bankruptcy, you must be an individual (no corporation, business or partnership), you must have a regular income, you must have disposable income at the end of each month (your income is greater than your reasonable living expenses), your unsecured debts may not exceed $337,000, and your secured debts may not exceed $1,010,650.

Will the IRS be notified of my Bankruptcy case?

       Yes.  However, even the IRS must stop its collection actions once a Bankruptcy Petition is filed.  However, since most tax debt is non-dischargeable, any claims by the IRS against you must be paid through the Chapter 13 Bankruptcy.