By: Justin M. Kincheloe, Esq.
So you have “failed” the Chapter 7 Means test and learned that you unfortunately do not qualify for Chapter 7 relief. What do you do? If you still need to file bankruptcy, it may be in your best interests to file Chapter 13.
Chapter 13 is a debt reorganization in which the debtor pays as much of the debt as he or she is able to pay over a period of up to 5 years. After this payment plan is completed, the debtor then receives a discharge as he or she would in a Chapter 7. How much you have to pay each month depends on your income, expenses, and debts.
Certain debts must be paid in full over the course of the Chapter 13 payment plan. The debts that must be paid in full include the arrearages on secured debts (as long as you wish to keep the collateral) and priority debts. There are a number of debts that are given priority in Chapter 13. Common examples include non-dis chargeable tax debts, unpaid alimony or child support, unpaid wages and commissions, and debts arising from driving under the influence in which the claimant sustained personal bodily injury or death. If you have a large priority debt, then you must be able to pay that debt in full over a maximum of 5 years. As you can see, priority debts and secured debts establish a floor which you must pay, at a minimum, in Chapter 13.
You may also be required to pay a percentage of your non-priority unsecured debts (e.g., credit card debt) if your income allows you to do so. When you file a Chapter 13, the bankruptcy trustee examines your budget to determine whether you are making the best effort to pay as much of the debt as you can. If it is determined that you can pay more than just your priority and the arrears on your secured claims, then you will have to pay a percentage of your non-priority unsecured debt as well based on the amount of disposable monthly income available to pay such debt.
Once a bankruptcy judge is satisfied that you are contributing all disposable monthly income to the repayment of your creditors, then the judge will confirm (approve) your bankruptcy payment plan. After confirmation, you must then make each payment under that payment plan as one of the prerequisites to receiving your Chapter 13 discharge.
Please keep in mind that this is just a general overview of Chapter 13 law. There are many other specific issues that may be pertinent in your case and this is not an exhaustive discussion of all issues in Chapter 13. It is highly recommended that a debtor consult with an attorney prior to filing. For further questions about filing for Chapter 13 contact one of our experienced attorneys at Thompson Steinberg.
Justin M. Kincheloe, Esq.
Justin Kincheloe is a partner and co-founder at Thompson Steinberg. He is licensed to practice in California and has been practicing consumer bankruptcy law for over three years. Mr. Kincheloe was born and raised in Des Moines, Iowa before moving to California. He is an avid sports fan and has a real passion for music.
**The information presented here is general in nature and is not intended, nor should be construed, as legal advice for a particular case. This blog posting does not create any attorney-client relationship with the author. For specific advice about your particular situation, please consult with your own attorney.**