Chapter Thirteen (13) is known as the "wage earner's bankruptcy." This involves the debtor's making payments to the Bankruptcy Trustee's office for a period of five (5) years to pay a portion of his debts. Under this Chapter, a debtor has to develop and file a plan for payments to creditors based on his income. Debtors in this Chapter must have the ability to pay debts that they are behind on over a period of time. A debtor generally gets to keep his non-exempted assets. This Chapter is normally used for debtors who are behind on their homes or other assets they want to keep.
When filing this Chapter, a debtor must propose an amount to pay each creditor. The Trustee office will collect the payments from either the debtor's employment or the debtor himself, depending on if the debtor has a job. The amount of payment is based on the amount of debt, the monthly financial obligation and how much can be paid to the unsecured creditors. The remainder of the debtor's income is used to pay all personal or business expenses such as utility bills, personal grocery bills, gas for vehicles and other miscellaneous expenses for daily living.
As to a personal home, the amount of payment cannot be changed. If a debtor is behind in payment, he can take the past due amount, called arrearage, and pay it over a five (5) year period. The mortgage payment must also be made during this same time. If a debtor has a rental property, he may keep this; however, he must pay the arrearage and monthly obligations.
As to motor vehicles, the value of the vehicle may be changed if the debt is approximately two and one-half (2 1/2) years old. Depending on the date of the debtor's purchase, the vehicle value may be lowered.
As to other secured collateral such as finance companies, these debts may also be revalued and the interest rate lowered in the Plan.
As to unsecured debts such as credit cards, generally, the debtors pay pennies on the dollar depending on his income and amount of debt. It is very possible to have unsecured creditors receive nothing depending on the amount of debt.
The Plan will be proposed by the debtor; however, all creditors can scrutinize the Plan. Generally, under Chapter 13, the Plan may change with payments going up or down. Each Chapter 13 is very different, depending on the Debtor's financial position.
A debtor is not limited to a number of times he can file a Chapter 13, however, if a debtor has previously had a Chapter 13 dismissed, the Court can order a period of time before the debtor can re-file. Also, if a Debtor has previously filed within the year, the "strong arm provision" for the debtor's home may not apply again.
The debtor must participate in credit counseling in order to file.
The question in determining whether to file a Chapter 13 or not, can the debtor makes the payments? Many cases get dismissed due to the debtor failing to make payments. This could be due to a loss of job, injury, or debtor just not having enough income to make the payment.