Debt repayment plan for a person with regular income
In a Chapter 13 bankruptcy, if you earn regular income (from your job or elsewhere), you can repay your debt on a 3-5 year repayment plan. Unlike Chapter 7, under Chapter 13 your assets do not have to be sold to pay off your debt. You keep your real estate and belongings and repay debts over time.
During the 3-5 year repayment period, creditors cannot take any collection steps; phone calls, letters, and lawsuits and reposessions by creditors are forbidden. Also, some of your debts may be reduced. For example, if you owe more on a car loan than the car is worth, under Chapter 13 the loan may be reduced to the fair market value of the car. If your home is worth less than the value of your first mortgage, the second mortgage may be stripped away.
You make payments to the bankruptcy trustee, who gives the money to the creditors. The amount creditors get paid depends on whether they are “priority” or “unsecured.” Priority creditors are eventually repaid in full while unsecured creditors may be repaid in in part, in full, or not at all, depending on the size of your debts and of your income. Once the 3-5 year repayment plan is completed, any remaining unsecured debts that are eligible for discharge will be wiped out.
Qualifying for Chapter 13
- Chapter 13 is for individuals, not businesses. Each repayment plan is different and depends on the income, expenses, and debts of the individual.
- You must have enough income to make payments on your debt under your Chapter 13 repayment plan. You must have enough disposable income (after deducting certain legally allowable amounts for living expenses) to make the entire court-ordered payment every month. Chapter 13 is often a good option if your income is too high to file Chapter 7 bankruptcy.
- Your debts must be under a certain limit. You can file Chapter 13 bankruptcy if your total unsecured debts do not exceed $360,475 and your total secured debts do not exceed $1,081,400 (amounts current as of April 1, 2010). Common unsecured debts include credit cards and medical bills. Common secured debts include mortgages and car loans.
- Any court-ordered child support payments must be brought current and must be kept current as part of the plan.
- You cannot receive a Chapter 13 bankruptcy discharge if you have received a bankruptcy discharge under Chapters 7, 11, or 12 within the past 4 years or a Chapter 13 bankruptcy discharge within the past 2 years.
- An experienced bankruptcy attorney can help you decide whether Chapter 13 bankruptcy would be a good fit for your particular financial situation. Other options include a non-bankruptcy debt renegotation by an attorney, and/or credit counseling.
Call San Diego Law Firm for bankruptcy help
If you have a regular income but are struggling with your debts and facing debt collectors, a Chapter 13 plan may be a good choice for you. Please call San Diego Law Firm today to schedule your fee consultation and find out if a Chapter 13 bankruptcy is right for you.