Uscourts.gov says Chapter 13 bankruptcy is sometimes referred to as a “wage earner’s plan.” This is because a Chapter 13 enables an individual with regular income to develop and plan to repay all or some of their debt. Under a Chapter 13 bankruptcy, debtors propose a repayment plan to make installments to creditors over a three to five year period.
If the debtor’s monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period. The court will only approve a longer period if the debtor can “show cause.”
If the debtor’s currently monthly income is greater than the applicable state median, the proposed plan must be for a period of five years. In no case, can the proposed plan provide for payments for a period longer than five years. U.S.C. § 1332(d).
According to the Uscourts.gov, Chapter 13 offers individuals an opportunity to save their homes from foreclosure.
This is made possible because by filing a Chapter 13, an individual can stop foreclosure proceedings and may cure delinquent mortgage payments over time.
However, the debtor must still make all mortgage payments, that are due during the Chapter 13 plan, on time.
Chapter 13 may offer the debtor the chance to strip a second mortgage from the debtor’s primary residence.
This is possible if the primary residence has a first mortgage that is equal to or more than the current value of the primary residence. In this case, the second mortgage may be found to be totally insecure and could be stripped from the property.
Chapter 13 bankruptcies allow individuals to reschedule secured debt (excluding a mortgage on the debtor’s primary residence) and extend the payments over the term of the Chapter 13 plan.
This can lower the payments that the debtor would otherwise be required to make.
Chapter 13 bankruptcy acts as a consolidation loan under which the debtor is required to make payments under the plan to a Chapter 13 trustee who then is responsible to distribute the payments to the creditors.
The advantage of this is that the debtor will have no direct contact with creditors while under chapter 13 protection.
An individual, even if self-employed or operating an unincorporated business, is eligible for Chapter 13 relief as long as the individual’s unsecured debts are less than $360,475 and the secured debts are less than $1,081,400. 11 U.S.C. § 109(e). A corporation or partnership may not be a chapter 13 debtor. Id.
An individual may not file a chapter 13, if during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or comply with orders of the court or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. 11 U.S.C. §§ 109(g), 362(d) and (e).
In addition, an individual must receive credit counseling from an approved credit counseling agency either in an individual or group briefing, within 180 days of filing for Chapter 13 relief. 11 U.S.C. §§ 109, 111.
Individuals should consult an experienced Denver bankruptcy lawyer for advice regarding an individual situation.