Chapter 13 Bankruptcy

Bankruptcy is a legal process by which individuals or businesses can either eliminate or restructure their debts. There are several forms of bankruptcy, but the most common for individuals are Chapter 7, which wipes out your debt in exchange for some of your assets, and Chapter 13, under which you file a debt repayment plan with the court.

In order to file under Chapter 13, you must:

• Have a job with sufficient income to make payments.
• Have debt totals below certain limits, as set by the Bankruptcy Code and adjusted every three years. As of April 2010, the maximum secured debt allowed is $1,081,400 and the unsecured debt maximum is $260,475.
• Undergo credit counseling before filing and additional counseling in budgeting and debt management near the end of your plan. All counseling must be from a US Trustee-approved agency.

Your repayment plan is the most important part of your Chapter 13 filing. In it you must detail your debts, how you intend to repay them, how much you will pay, and for how long. The required length of your plan will depend on how your average monthly income from the six months before filing compares to your state's median income for your household size. If it's lower, your plan must be three years and if it's higher, five years.

You may not need to repay all your debts in full. Those you must pay are priority debts, including child support, alimony, taxes and, for business owners, wages owed, as well as secured debts. If you have fallen behind on any of these, you must also include a plan to bring them current.

Any disposable income left after paying the above must go toward unsecured debts, like credit cards. If your income is higher than your state's median, disposable income is calculated using allowed expenses, not necessarily your actual expenses. If you have no additional disposable income, you may not have to pay anything on unsecured debts.

If for some reason you cannot finish your Chapter 13 repayment plan, you may be able to modify it or possibly discharge your remaining debt due to hardship. Another option might be converting to Chapter 7 bankruptcy.

After you complete your plan, and can prove that you are current on any priority payment obligations, any remaining unsecured debt will be erased.

If you are interested in determining if Chapter 13 bankruptcy protection is right for you or your business please contact the Sarasota bankruptcy lawyers at R. John Cole II & Associates at (941) 365-4055. It is our goal to find the right solution for our clients.