Filing chapter 13 bankruptcy is much like filing chapter 7 bankruptcy, initially, but it does get much more complicated.
Written by Attorney Tina Tran.
Updated September 23, 2020
Before getting started, you’ll need to make a decision about whether you will be filing a Chapter 7 or a Chapter 13 bankruptcy. There are pros and cons for each type, and depending on what your goals are, one will be the better option over the other. A Chapter 13, for example, will be the better option if you have non-exempt (unprotected) property that you want to spare from the potential fate of being sold to pay your unsecured debts in a Chapter 7 bankruptcy.
What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is the second most common type of bankruptcy people file after Chapter 7 bankruptcy. Arguably, Chapter 7 bankruptcy gives you the biggest benefit because it allows you to wipe away your debts completely without having to repay any amount to your creditors. Even still, your goals and personal circumstances may not warrant filing a Chapter 7 bankruptcy.
To be eligible to file a Chapter 7, you’ll first need to meet the income requirements. If your income is below the median income for your household size in your state, you will most likely qualify to file a Chapter 7. You are not automatically disqualified from filing a Chapter 7 if your income is above the median household income in your state. However, you will need to pass the means test to assess your eligibility to file a Chapter 7 if your household income is above the median for your state.
Unlike the Chapter 7 income requirements that you have to meet to qualify for Chapter 7 bankruptcy relief, you can qualify to file a Chapter 13 bankruptcy regardless of whether your income is below the median income level or whether you pass the means test. Nonetheless, your income will play a factor in determining whether filing a Chapter 13 case is a feasible option for you.
Chapter 13 bankruptcy is often referred to as a “wage earner’s bankruptcy” or a “reorganization”. In contrast to a Chapter 7 bankruptcy, a Chapter 13 requires you to repay a portion, or all of your debts back in order to successfully complete your case and receive a full discharge. You will need to show that you receive enough income to keep up with your payments for the duration of your Chapter 13 case.
Another major difference between a Chapter 7 bankruptcy and a Chapter 13 is the duration of the case. A Chapter 7 case generally lasts for about 4 to 6 months, whereas a Chapter 13 case lasts for 3 to 5 years. During the 3 to 5 years you are in a pending Chapter 13 case, you will be making monthly payments to your assigned trustee.
Rather than making monthly payments as you would in a Chapter 13, a Chapter 7 case requires you to give up your unprotected (non-exempt) possessions in exchange for debt relief. In a Chapter 7, your unprotected property gets sold and the proceeds are distributed to your creditors. A Chapter 13 allows you to avoid the the potential of having your unprotected property sold by the trustee, as you'll be paying your creditors the value of your unprotected property over the duration of the Chapter 13 plan.
What Are The Steps to Filing A Chapter 13 Bankruptcy?
Generally speaking, the initial process of filing a Chapter 13 bankruptcy is, more or less, similar to filing a Chapter 7 bankruptcy. It doesn’t get much more complicated until you reach the point at which you have to properly calculate what your monthly Chapter 13 payments will be based on a number of different factors.
Step 1: Collect your documents.
You will need to obtain copies of your credit report from the credit reporting agencies (Experian, TransUnion, and Equifax). You can get a copy of your credit reports for free once per year.
Before you start filling out any forms, you’ll want to find out how much debt you owe and who your creditors are. Keep in mind that not all of your debts will be listed on your credit report. You’ll be required to disclose all of your debts on your bankruptcy forms, regardless of whether they are listed on your credit reports (medical bills, tax debts, fees and fines). Keep a list.
In addition to obtaining your credit report, you will need the following documents:
Tax returns for the past 4 years
Paystubs or other proof of income for the last 6 months before filing
Bank account statements from the past 3 to 6 months
Recent mortgage statement(s) and real estate tax bills
Residential lease agreement – if applicable
Recent retirement account or brokerage account statements
Valuations or appraisals of any real estate you own
Recent car loan statement(s)
Any other documents relating to your assets, debts, or income.
These documents will help you get a complete and more accurate picture of your finances. Having them readily available will make filling out your bankruptcy forms that much easier.
Step 2: Analyze your debt.
Now that you have a list of all your debts, it’s time to analyze! Next to each debt, write in what type of debt it is. Is it a credit card debt? Is it a medical bill? A payday loan?
Once you have labeled the type of debt you owe, you’ll need to figure out whether the debts you have are secured debts or unsecured debts. Secured debts are debts attached to some type of collateral. Your mortgage or car loan are two of the most common examples of secured debts. Unsecured debts include credit card debts, medical bills, payday loans, and any other debt not attached to a specific piece of property.
The next step in analyzing your debts is to determine which debts are priority debts and which debts are non-priority debts. Common priority debts are child support payments, domestic support obligations, and certain tax debts. Whether your debts are secured or unsecured, priority or non-priority, will impact your repayment amount and the order in which your trustee will distribute your Chapter 13 plan payments each month.
Step 3: Take inventory of the property you have.
Make a list of all the property you own and how much each item is worth. This step is important because you will need to know what you have, and how much of it you can protect using bankruptcy exemption laws. Although filing a Chapter 13 bankruptcy allows you to protect and keep all your property, your Chapter 13 plan will require you to pay certain creditors an amount that is equal to the value of your unprotected property. In other words, you can expect to pay an amount equal to the amount certain creditors would be getting if you had filed a Chapter 7 case.
Step 4: Create a budget and figure out the status of your income.
You can file a Chapter 13 bankruptcy if you are unemployed. However, you must be receiving income from another verifiable source other than from employment. If you receive government benefits, financial assistance from friends or family, or monthly pension payments, for example, you will be able to file a Chapter 13 if you can show that your income is enough for you to make monthly plan payments.
Once you create a budget and discover that you don't receive enough income each month to pay your monthly living expenses in addition to your Chapter 13 monthly plan payments, you will not be able to proceed. You’ll need to prove to the bankruptcy courts that you have a feasible plan in order to move forward with your case.
Step 5: Take the first credit counseling course.
Before filing your Chapter 13 bankruptcy forms, you’ll need to complete a credit counseling course approved by the Department of Justice. The course takes approximately one hour and can be completed online or by telephone. The fee ranges from $10 to $50, depending on the provider. You may be able to get this fee waived if your household income is under 150% of the federal poverty line.
Once you’ve completed the course, you’ll receive a certificate of completion. You will need to keep a copy and file it with your bankruptcy paperwork.
Step 6: Fill out and complete your bankruptcy forms.
This will most likely be the most time-consuming step of the bankruptcy process. The forms ask you about everything you make, spend, own and owe. There are 23 separate forms, totaling roughly 70 pages in your Chapter 13 petition. You must enter all of your financial data and be able to give the court a full and accurate picture of your financial situation. Part of filling out the bankruptcy forms in a Chapter 13 case is also drafting your Chapter 13 repayment plan.
Step 7: File your Chapter 13 Bankruptcy petition and pay the filing fee.
When you have completely filled out and reviewed your bankruptcy forms, you’ll need to print them out, sign the signature pages, and bring them to court. Don’t forget to include your credit counseling certificate along with your printed bankruptcy forms.
The filing fee for a Chapter 13 case is $310. You’ll need to pay the full amount directly to the court when you go to file your forms. There is no fee waiver option when filing a Chapter 13 case like there is with a Chapter 7. Make sure to also print out the exact number of copies your local bankruptcy court requires. You can find out how many copies you’ll need to bring with you by contacting your local bankruptcy court before filing.
Step 8: Send documents to your trustee.
You’re obligated to comply with reasonable document requests from your trustee, who is the official appointed to oversee your case. Before your meeting of creditors, your trustee will request that you send them certain financial documents, like tax returns, paystubs, and bank statements.
Your trustee will use these supporting documents to compare and verify the information you have provided in your bankruptcy forms. Failure to send these documents requested by your trustee will result in the dismissal of your case. You will not receive a discharge.
Step 9: Attend your 341 meeting of creditors and your confirmation hearing.
Approximately a month after you file your bankruptcy petition, you’ll meet with your Chapter 13 trustee. Don’t worry, you won’t be meeting the judge assigned to your case on this day! Your creditors, however, do have a right to be at your 341 meeting, but they very rarely show up.
At the meeting with your trustee, you’ll be required to verify your identity and provide supporting documents. Your trustee is tasked with reviewing your supporting documents and using the testimony in your meeting to make sure your bankruptcy forms are filled out correctly and that your proposed plan is feasible.
The next appearance you have to make is at your confirmation hearing. You WILL have to appear in front of a judge on this day. The judge will decide whether to confirm (approve) your Chapter 13 plan and allow your case to move forward. If there are no objections by either your trustee or your creditors, your case will be confirmed.
Step 10: Keep up with your Chapter 13 plan payments.
Woohoo! The hard part is over! Congratulations on getting your Chapter 13 plan approved! Now you’ll need to continue making your monthly plan payments for the next 3 to 5 years before your case successfully concludes and your discharge can be entered.
The first payment is due within 30 days after you file your bankruptcy forms. Keep in mind that up until your case is confirmed, your monthly plan payments can increase or decrease. If you fall behind on your payments and are unable to catch up within a reasonable amount of time, your case will be dismissed and you will not receive a discharge.
Step 11: Take the second debtor education course and receive your discharge.
You’ve made it to the end! Taking the second debtor education course is the very last step before receiving your discharge.
As long as you’ve followed the terms in your Chapter 13 plan, you’ll receive a discharge at the conclusion of your case. Any unpaid balances on most unsecured debts will be eliminated. For example, if you were required to pay your unsecured debts back at 10%, you’ll be relieved of the obligation to pay back the 90% balance.
Congratulate yourself! Successfully reaching the end of a Chapter 13 case is not an easy task. Chapter 13 cases that are filed without an attorney have an enormously low success rate. The majority of Chapter 13 cases that are filed, even with an attorney, do not make it to discharge. While the initial process of gathering documents and filling out forms is essentially identical to the process of filing a Chapter 7 case, there are major differences that ultimately make Chapter 13 cases significantly more complicated than Chapter 7 cases.
The duration of a Chapter 13 compared to a Chapter 7 case, alone, is enough to dramatically decrease the likelihood of successfully completing a Chapter 13 case. Even when represented by an attorney, Chapter 13 filers will fall behind on their monthly plan payments. Without having the ability to catch up, these cases get dismissed and the filer is left without a discharge and without any debt relief.
Aside from the obligation to keep up with monthly payments once the plan has been confirmed (approved), the additional paperwork and court appearances required in a Chapter 13 case make the likelihood of reaching a successful conclusion even more unlikely without the assistance of an attorney.
If you intend to file a Chapter 13 case without an attorney, you’ll be expected to know and follow both federal and local bankruptcy court rules. Some bankruptcy courts have bankruptcy help-desk hours where you can go for assistance if you’re filing without an attorney. Contact your local bankruptcy courthouse to find out if they have one! If you would like for Upsolve to help connect you with an attorney: Click Here.