Chapter 13 petitions are most often filed by wage earners who have the ability to pay back a portion of their debts with their disposable monthly income. Individuals seeking relief under the Bankruptcy Code whose income exceeds the household limits permitted for Chapter 7 filers may have no choice but to file in Chapter 13.
An individual with a regular income, whether self-employed or not and whether operating an unincorporated business or not may qualify as a Chapter 13 debtor, but a corporation or partnership may not file.
Chapter 13 of the Bankruptcy Code allows individuals with regular income to propose a three to five year plan to repay all or part of their debts, which must be approved by the court. If a debtor’s current monthly income is less than the state median for the same size family within the state where the filing debtor files, the plan will be for three years unless the court approves a longer payment period “for cause.” If the debtor’s current monthly income is greater than the state median, the plan generally must be for five years. In no case may a plan provide for payments over a period longer than five years.
A Chapter 13 payment plan is governed by bankruptcy code provisions that define the amount of disposable monthly income allowed a debtor. The debtor is given an allowance for certain living expenses to be deducted from the debtor’s gross income to determine what the debtor’s disposable monthly income, in structuring the plan. The debtor must devise and submit a qualified plan within a certain time frame to be confirmed by the bankruptcy court.
Once the plan is confirmed, the debtor will forward the monthly plan payment to the bankruptcy trustee, who will distribute the monthly amount to qualifying unsecured creditors, certain secured creditors made part of the plan, and for the legal costs of administrating the case. If at the conclusion of the plan an unsecured claim is not paid in full, the remainder of the debt will be discharged if the debt is not exempt from discharge.
A fairly typical situation that may be resolved through Chapter 13 is a homeowner who has fallen behind in mortgage payments due to illness, loss of employment or other temporary reason, who is now able to show that s/he is able over a three to five year period that s/he has sufficient monthly income to pay the regular mortgage payment and qualified living expenses, and have enough monthly surplus to pay the mortgage arrears in full over that time period. In this way, the homeowner is able to bring the mortgage current and avoid foreclosure.
Please contact Mr. Whelan at 732-214-0300 for a free initial consultation.