Chapter 13 Bankruptcy Information

Chapter 13 is a reorganization bankruptcy for individuals. It helps qualified individuals, or small proprietary business owners (NOT a corporation or partnership), who desire to repay their creditors but are in financial difficulty. Chapter 13 offers great opportunities to pay off past due mortgage or car payments over 36-60 months, giving you time to catch up and keep your property. It is often referred to as a "mini Chapter 11" because you usually repay something to your creditors and you retain your property and make payments under a Plan.

Chapter 13 vs. Chapter 7 – One purpose of a chapter 13, as opposed to a chapter 7, is to enable a debtor to retain certain assets that might otherwise be liquidated by a chapter 7 Trustee. It also provides an alternative to Chapter 7 when you "flunk the means test" and have too much "disposable income" (your net monthly income exceeds your net monthly expenses by too much). You may have to pay some amount to your unsecured creditors (such as credit cards and medical bills), but that amount is determined by the results of the means test analysis, and also by the amount of money you have available. Very seldom does the amount of unsecured debt determine how much you must pay unsecured. The goal of most any personal bankruptcy is to discharge your existing debts. In Chapter 13, you obtain this discharge by repaying all or a portion of your debts. Once your discharge is granted, you no longer need to repay the debts that were incurred before you filed your bankruptcy.

Assuming you need to file a bankruptcy, the only way to determine which Chapter to file under is to first compare your options under the other available Chapters and be sure you have consulted with an experienced bankruptcy attorney to properly analyze your options.

Who may file Chapter 13 bankruptcy?

Individuals with regular income who owe debts within certain limits (separated into secured of around $1,000,000 and unsecured of around $330,000—these amounts change based on allowances in the Bankruptcy Code), on the date of the filing are eligible for Chapter 13. The debt limit calculations can be complicated. Chapter 13 may be your only option if your annual income exceeds the median income for the region where you are filing and if the "means test" shows you have more than $100-$167 per month to pay to your creditors. What are the benefits of Chapter 13?

Chapter 13 protects individuals from the collection efforts of creditors. It permits individuals to keep their real estate and personal property. It provides individuals the opportunity to repay their debts through (usually) reduced payments.

You may be able to discharge debts in a Chapter 13 that would be nondischargeable under other chapters, for example, certain fraud judgments and certain tax obligations.

You may be able to get rid of junior liens on your real property. Certain tax repayments can be made easier by virtue of elimination of interest payments.

How does Chapter 13 work and how long does it last?

First of all, you must have some type of "regular income". You are usually required to pay all of your disposable (“leftover”) income to the Chapter 13 Trustee, through your plan, for 36 to 60 months. The amount of disposable income is determined at the time of filing. In addition to your plan payments, you will be required to continue making payments on ongoing obligations to secured creditors, such as on your mortgage. Chapter 13 (or any chapter of bankruptcy for that matter) only affects debts that you owe on or before you filed the bankruptcy. Therefore, on your mortgages and other secured debts, your monthly Plan payment goes to pay any arrearages (past due amounts) that existed on the date you file and you can repay that arrearage over the life of the Plan; but, you must stay current from the filing date forward with any mortgage payments, etc.

Congress may be acting on legislation to allow more flexibility in restructuring some mortgages through Chapter 13. We will try to keep you informed on this website Secured debts (your mortgages) must be repaid in full, but Chapter 13 enables you to cure the defaults (reinstate the loans) over 36 months to 60 months. You also have the ability to eliminate junior liens from your real property under certain circumstances, and restructure car and other secured loans.

Another thing to bear in mind is that approval of ANY Chapter 13 Plan of repayment requires a determination by the court that the case is filed and the plan proposed in Good Faith. I won't try to define that for you on this website, but remember that nothing is automatic.

How much will I have to pay each month?

The size of your monthly plan payments is determined by the amount you can afford to pay after paying necessary living expenses (including insurance, mortgage payments, etc.), and also by the results of the means test and the amount of non-exempt property you may be retaining. You must prove your income to the Trustee. Usually this is done with paycheck stubs. In the case of a business, you would need to average out your income and expenses for the last 6-12 months. Assessing the amount you will pay in a Ch. 13 is very tricky and is one of the reasons you need an experienced attorney.

Another "catch" is that you must pay out at least as much in the Chapter 13 Plan as your creditors would have gotten if you filed a Chapter 7. Therefore, if you have valuable nonexempt assets, you would need to account for this in your plan. Depending on your disposable income (see above), you may have to sell some of your non-exempt assets to fund your Chapter 13 plan. If you miss any payments at all that are due under your Plan, your case can be dismissed by the Court.

You cannot borrow money (incur new debt) during the pendency of your case without first obtaining court approval.

Make an appointment now by calling 866-603-0804

Located in Dallas, Texas, Harriet Langston, P.C., represents individuals and businesses in bankruptcy matters and assists clients with financial solutions outside of bankruptcy, when possible, for residents and businesses in and around Cedar Hill, Dallas, DeSoto, Frisco, Highland Park, Park Cities, Plano, Red Oak, Rockwall and University Park.