Chapter 13 Wage Earner Bankruptcy Basics
An individual or sole proprietor can file Chapter 13 bankruptcy. Chapter 13 provides for full or partial repayment of your debts over a three- to five-year time period. Like Chapter 11, you'll go through a "means test" to determine the amount of debt you'll have to pay back and how long you have to do it.
The courts make their determination based on your income, whether it's less, the same or more than your state's median income. If your income is more than your state's median income, the repayment period will most likely be five years. No plan exceeds five years. People who have the following often file Chapter 13 bankruptcy:
- Mortgages or other loans they would like to bring current, so they don't lose their homes or other property
- Taxes, child support or student loans that can't be wiped out by Chapter 7 bankruptcy
- Moral convictions that all debts should be paid no matter how long it takes
Basic Chapter 13 Requirements
To declare this type of bankruptcy, you'll need a stable income with "disposable income." Disposable income is income left over after you pay for basic life requirements, such as food and utilities. You can't have more than $1,081,400 in secured debt (property or other assets a creditor might take if you don't make payments) and $360,475 in unsecured debt. These amounts change sometimes to reflect changes in the Consumer Price Index. There's also a court filing fee.
The Chapter 13 Process
The process to file Chapter 13 Wage Earner Bankruptcy is as follows. First, you file a petition in Bankruptcy Court. You must bring a list of creditors, assets and liabilities and current income and expenses. You must also file a "Statement of Financial Affairs." It must provide the following:
- Income from employment or business operations including amounts and sources
- Other income
- Payments made to the creditors within 90 days of the filing
- Payments made within one year of filing to creditors who were "insiders" - relatives, partners and corporations where you're an officer of the company
- A list of lawsuits that you were a party to within a year of filing
- All property, including that which was garnished or seized
- Property repossessed within one year before filing
- Assignment of property for benefit of creditors within 120 days before filing
- Gifts and charitable contributions made within one year of filing
- Losses from fire, theft, gambling, etc., within one year or since the beginning of the action
- Payments made for debt counseling or bankruptcy, including attorney fees
- Transfers of property made within two years before filing
- Property transferred to a trust within 10 years prior to filing
- Financial accounts that were closed within one year
- Safe deposit boxes
- Setoffs to creditors
- Property held for another person
- All premises occupied within the last 3 years.
- The names and addresses of spouses and former spouses if the debtor lived in community property state.
- Any businesses owned
