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Chapter 13 Bankruptcy

     When a person files for relief under Chapter 13 of the Bankruptcy Code, their goal is to repay some or all the debts in their name, in better terms, such as a reduced interest rate.. Unlike Chapter 7 which involves liquidation of assets, this process allows the debtor to use whatever income they may have in the future to pay off the creditors.

justice (11K)      Who can use Chapter 13?

     Chapter 13 is available to those borrowers with regular income who have less than $307,675 in unsecured debts (such as credit cards) and less than $922,975 in secured debts (such as mortgages and car loans). In a joint Chapter 13 case those limits are not doubled, instead they are applied to the total amount owed by the debtors.

     A Chapter 13 discharge won't be granted if the debtor received discharge in Chapter 7, 11, or 12 within the previous 4 years, or a discharge under Chapter 13 within the previous 2 years.

     Generally, chapter 13 is preferred by debtors who have a valuable asset, such as a home, that is not completely covered by exemptions and that they wish to keep. This is possible because under Chapter 13 a debtor proposes a plan to repay creditors over a three to five year period during which the debtor can make up overdue payments on any assets and pay into the plan the equivalent value of any assets not covered by exemptions. Since the debtors plan will require regular monthly or biweekly payments, Chapter 13 is usually only appropriate for an individual debtor who has a regular source of income. Chapter 13 bankruptcy isn't for everyone. Because Chapter 13 requires you to use your income to repay some or all of your debt, you'll have to prove to the court that you can afford to meet all of your payment obligations. If your income is irregular or too low, the court might not allow you to file for Chapter 13.

     Chapter 13 allows individuals who have steady incomes to pay all or a portion of their debts under protection and supervision of the court. Under Chapter 13, you file a bankruptcy petition and a proposed payment plan with the U.S. Bankruptcy Court. Payment plans provide for payment of debts over 3 to 5 years. An important element of Chapter 13 is that you will be permitted to keep all your assets while the plan is in effect and after you have successfully completed it.

     The filing of the bankruptcy petition must be accompanied by a proposed payment plan over three to five years. The proposed payment plan must provide for the payment of all priority claims in full unless the particular priority creditor agrees to a different plan or, if the claim is a domestic support obligation, you agree to contribute all of your disposable income to a five year plan. "Priority claims" are those claims that are given a special status under bankruptcy law, such as taxes and the costs of the bankruptcy proceeding.

billstack2 (10K)      The plan is prepared by your attorney and submitted with the Petition to the Court. The trustee will review the plan for feasibility and to determine if the plan complies with the requirements of the bankruptcy law regarding payments made to your creditors. Debtor's are not permitted to repay funds borrowed from their 401(k) pension.

     Under Chapter 13, you will make regular payments, usually through a payroll deduction, to the U.S. Trustee. These payments must represent one of the following:
  • Complete repayment of your debts (provided you have sufficient income to do so) at a fair rate of interest (approximately 7%); or
  • Your disposable income (best effort) for a three - to five-year period. Best effort means whatever is left over from your total income after you have paid for taxes and necessary living expenses.
     In determining your disposable income, you are not permitted deductions for payments on luxury items or repayment of funds borrowed from your 401(k) account.

     The trustee and your creditors have the opportunity to dispute your proposed plan if they believe that it is unfair. If there is no objection by creditors or the trustee, the plan may be more flexible. The plan that you prepare for review by your lawyer should take into account your income from all sources and your necessary expenses. What is left from your income after paying living expenses will be available for disbursement to your creditors. Often, your "best effort" may require you to make a reduction in your standard of living by reducing or eliminating expenses for entertainment, luxury or other unnecessary expenses.

     You must begin making payments under your Chapter 13 repayment plan within 30 days after you file it with the bankruptcy court. Usually, you make payments directly to the bankruptcy trustee (the person appointed by the court to oversee your case). Once your repayment plan is confirmed, the trustee will distribute the money to your creditors. If you have a regular job with regular income, the bankruptcy court may order that your monthly payments be automatically deducted from your wages and sent directly to the bankruptcy court.
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Debt Relief Agency

We are a Macomb County Law Firm as well as a Debt Relief Agency helping people file for bankruptcy relief under the United States Bankruptcy Code.


Information provided on Legal issues and bankruptcy questions are frequently complex and individual. The information contained here is intended to be educational only: it is not legal advice nor does it create an attorney client relationship between the viewer and the firm.