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CHAPTER 13 – “REORGANIZATION” BANKRUPTCY

Chapter 13 bankruptcy, or “reorganization” bankruptcy, is an ideal solution for higher earning debtors and/or debtors who own a home or other property securing a debt that they have fallen into arrears on. A Chapter 13 bankruptcy does not liquidate debt outright as a Chapter 7 bankruptcy does. Rather, through the Chapter 13 process, you work with your attorney to create a payment plan according to specifications in the Bankruptcy Code which will allow you to make up any arrears on secured and other debt. Unsecured debt is paid through the plan after the secured and other “priority” debt, and any unsecured debt remaining at the end of the plan is then discharged in balance at the completion of the plan.

Chapter 13 plans last at least 3 and no more than 5 years. Although each plan is unique to you and your circumstances, there are some mandatory thresholds that you must pass in order for the Bankruptcy Court to confirm your plan.

Unlike Chapter 7, there are limitations to the amount of debt you can have when filing a Chapter 13. Additionally, you must demonstrate an “ability to pay,” which is, simply, a demonstration that you have the ability to make the monthly payment that the plan calls for. Therefore, Chapter 13 may not be a viable option for you if you are unemployed or earn very little money after your monthly expenses are paid.

Other considerations in the formulation of the plan are too numerous to describe in detail here, and many are jurisdiction-specific. What is required by a judge in my jurisdiction of practice, the Detroit area of the Eastern District of Michigan, may vary from what is required by a judge elsewhere in the United States.

However, if your goal for filing bankruptcy is to save a home or other property or to simply buy some time to make your payments current, and you have regular employment or some other regular source of income, a Chapter 13 may be a good solution for you.