Chapter 13 Bankruptcy

Also referred to as “reorganization bankruptcy,” Chapter 13 involves the filer’s income as the main source of repayment of debts owed to creditors. The duration allowed to the filer usually is between 3 and 5 years depending on the amount of both the debt and income. If a person does not qualify for Chapter 7 bankruptcy, they usually look towards other alternatives before filing Chapter 13 bankruptcy.

If Chapter 13 bankruptcy proves to be the best route for the individual but their income level is too low, the courts may not allow the filing to take place. Furthermore, if the overall unsecured debt amount is too high (over one million USD) the individual may not be eligible. These are a few reasons why a bankruptcy alternative plan may be best for the individual involved.

The most important part of Chapter 13 is the overall structuring of the repayment plan. This plan serves to describe in detail how the individual is to pay off their debts and even more importantly, how much of the debt is to be repaid. The courts are solely responsible for the outline of this repayment plan.

Within a Chapter 13 repayment plan are debts commonly referred to as “priority debts.” These are debts that are more important than other debts within the bankruptcy obligation and are to be paid back in full. Common priority debts include child support, alimony, employee wages, and debts owed to the IRS.

In addition to priority debts, there are also other arrearages. An arrearage is the amount of money one has fallen behind in payments to creditors. Secured debts such as mortgages, cars, and boats are also to be outlined in this repayment plan.