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Chapter 13 bankruptcy lets you restructure overwhelming debts under the protection of a federal court, setting up a repayment period of three to five years.
This is also called “wage earners” bankruptcy, because you must have a regular income to qualify. The goal is to resolve some debts and get current on secured loans — those with collateral, such as a home or car. Here's how to figure out if Chapter 13 bankruptcy is right for you and how to file.
Do you qualify for Chapter 13 bankruptcy?
To qualify for Chapter 13 bankruptcy:
You must have regular income.
Your unsecured debt cannot exceed $394,725, and your secured debt cannot exceed $1,184,200.
You must be current on tax filings.
You cannot have filed for Chapter 13 bankruptcy in the past two years or Chapter 7 bankruptcy in the past four years.
You cannot have filed a bankruptcy petition (Chapter 7 or 13) in the previous 180 days that was dismissed for certain reasons, such as failing to appear in court or comply with court orders.
If you don’t qualify for Chapter 13, consider looking into other debt relief options.
How do you file for Chapter 13 bankruptcy?
When considering bankruptcy, meet with a credit counselor from a nonprofit credit counseling agency and with a bankruptcy attorney. Both initial consultations should be free. These meetings will help you understand your circumstances and decide whether bankruptcy is the best route to get your finances back on track.
In Chapter 13 bankruptcy, you and your attorney will work to prove your eligibility for a debt reorganization to a bankruptcy trustee, who administers the proceedings. You’ll get court approval of a plan to repay both unsecured and secured debts in part or in full. You'll pay over three to five years and will retain your assets. At the end, the remainder of some debts may be forgiven.
Once you’ve decided to file, you’ll go through these steps:
Credit counseling: Complete pre-filing bankruptcy counseling through a nonprofit credit counseling agency. Your counselor may also help you draft a repayment plan.
Get an attorney: Hire a qualified bankruptcy attorney. Chapter 13 is very complex, and skipping a step or improperly filling out a form can lead to your case being thrown out or not having certain debts covered.
Fill out paperwork: Your attorney will help you fill out the various forms required to file. You’ll need to gather information on your whole financial picture, including debts, income, property and monthly expenses.
Submit bankruptcy petition: Also known as “filing” the bankruptcy, submitting the various forms kicks off the process. A bankruptcy trustee will be appointed. As soon as you file, you enter what’s called an “automatic stay,” which means that most attempts to collect on your debts must cease.
Submitting payment plan: Within 14 days of filing the petition, you must submit a proposed payment plan. You must start making payments on the plan within 30 days of filing the petition, even if it hasn’t been approved yet.
Meeting of creditors: Between 21 and 50 days after filing the petition, the trustee will host a meeting in which creditors can discuss any issues they have with you.
Confirmation hearing: No later than 45 days after the meeting of creditors, you, the trustee and creditors who wish to attend meet in court to confirm the payment plan.
Payment: Over three to five years, creditors are paid as agreed under the plan.
Debtor education course: Before the Chapter 13 bankruptcy is complete, you must complete a “debtor education course” from a nonprofit credit counseling agency.
Click through these sections to learn whether Chapter 13 bankruptcy is right for you and how to rebuild from bankruptcy.