Chapter 13 Bankruptcy is a type of reorganization. Chapter 13 is sometimes referred to as a wage earner plan because one of the requirements of Chapter 13 is that you have regular income. However, you do not have to earn wages to be eligible for Chapter 13, you can be self employed or have a business, but you must then have regular income from those sources. There are other requirements of Chapter 13. For instance your secured debts (e.g. mortgages and car loans) must be less than $1,081,400.00 and your unsecured debts ( e.g. credit cards, bank loans, and medical bills) must be less than 360,475.00. You should speak to a Lawyer about your eligibility since it is not as cut and dry as it may seem, and there are other requirements you must meet.
When should you think about Chapter 13 Bankruptcy? Well, if any of the following apply to you, then start thinking Chapter 13 !
You have excess equity (Fair market value minus mortgages minus $ 21,625.00 per person on the deed) in your home or even your investment property to a more limited extent.
The same applies to motor vehicles, excess equity in motor vehicles fair market value minus car loads minus $3,450.00 per person on the title.
Really excess equity in any property, for example jewelry, collectibles and other personal property.
Back real estate or income taxes and stop the interest and penalties.
Have a tax sale or sheriff sale pending
Need to reduce you car loan payments
Need to eliminate or reduce 2nd or 3rd mortgages or home equity loans
Need time to make important back payments mortgages, car loans, child support or alimony.
Need to get rid of a debt that you just cannot get rid of in Chapter 7
Need to get your drivers license back from the State of New Jersey because you did not pay your surcharges.
THEN THINK CHAPTER 13 !
In a Chapter 13 Bankruptcy you have a payment plan with the Court. You have to make regular (usually monthly) payments to a Court appointed Trustee. Those payments are then paid to certain creditors ( people you owe money too). The payments are initially set by your attorney and later by a trustee. The payments you make could be for back payments you owe, so you can catch up and be current ( called curing the default), or to "buy back" the excess equity you have in your property so you do not lose that property. The payments may be instead of making your car payments. Sometimes the payments are just for pay a part of your debts, the part you can afford. Chapter 13 is very flexible and can be used in a lot of different ways. What chapter 13 is really about is getting rid of debts that you could not get rid of in Chapter 7 and/or reducing your cash outflow for debts. When your income is cut for any reason, you can cut your expenses in a Chapter 13 Bankruptcy.
A Chapter 13 Bankruptcy usually lasts 36 to 60 months unlike a Chapter 7 Bankruptcy that lasts 4-6 months. However, most of the activity in a Chapter 13 is over in about 6 months at which time your plan is confirmed (approved), after that you just have to make your payments when due.
Eric Lester Leinbach, Esquire
Disclaimer and Limitation of Use : The information on these pages is not intended as legal advice but rather general information. Reading or using the information on this website does not establish an Attorney-Client relationship. Such a relationship can only be created with the express written consent of an Attorney and the Client. The Bankruptcy Statute and Court Rules are complex. The answers to frequently asked questions at this site are only intended to provide a general information concerning the bankruptcy statute and rules. Individuals should always consult with an experienced bankruptcy Lawyer before making any decision or taking any action. I offer a free initial consultation by appointment only. I am licensed to practice in both Pennsylvania and New Jersey.