Chapter 13 Bankruptcy
Chapter 13 bankruptcy is known as reorganization bankruptcy. The debtor uses their income to repay some or all of what they owe their creditors, so they must have “disposable income.” The means test in chapter 13 not only determines the debtor’s eligibility based on income but also how much they will have to repay and for how long. A chapter 13 bankruptcy typically lasts between three and five years depending on debts and income.
Like chapter 7, a petition that includes income, expenses, and debts must be filed along with the statement of financial affairs. The petition must also include a repayment plan. A court-appointed trustee reviews and approves the plan. The debtor will make payments to the trustee, who will distribute the payment amongst the debtor’s creditors. In order to be included in the repayment plan, creditors must file their claims with the court.
Filing chapter 13 also provides an automatic stay, which stops an impending foreclosure or repossession as soon as the petition is filed. This allows the debtor to become current on their mortgage or loan payments during the bankruptcy.
The trustee holds a meeting of creditors, or a 341 meeting, shortly after the petition is filed. The debtor is placed under oath, and the trustee asks questions about the debtor’s income, property, and debts. Any problems with the repayment plan may also be fixed at or shortly after the 341 meeting.
If the debtor is unable to continue their payment plan, such as a change in income due to losing a job, the trustee may modify the plan so that the debtor may continue making payments.
The chapter 13 repayment plan ends when all of the debts in the plan have been paid off. The bankruptcy stays on the debtor’s credit report for 7 years after the date of filing.