Chapter 13 is a POWERFUL 36 to 60 month Federal debt reorganization plan proposed by you and backed up by the coercive power of a federal court.


You don't have to beg, ask, or even call your creditors to get things done. You propose a modification plan according to the rules, and CREDITORS MUST COMPLY. The federal judge will make sure they do.


A SHIELD AND A SWORD

Like the Chapter 7, the Chapter 13 acts as a shield to protect you from harrassing creditors through the automatic stay. However, also think of the Chapter 13 as a powerful sword that you can wield and go on the offensive against your creditors.


Use the Chapter 13 to force your creditors to accept payments for past due balances (cure arrearages) free from debt collector harassment and interference and without the impending threat of foreclosure or repossession. Use it to stop late fees, default charges, and accruing interest.


Force certain secured creditors to reduce loan balances and modify loan terms in your favor. Use it strategically to wipe-out your second mortgage or home equity line of credit.


You can do all this while keeping your property and only paying your unsecured creditors (credit cards, payday loans, medical bills) what you are able to afford - as low as 10 cents on the dollar.

THE CHAPTER 13 SUPERDISCHARGE

Chapter 13 can also eliminate certain debts that cannot be wiped-out in a Chapter 7. Most commonly these are unemployment overpayments, certain domestic support obligations, and parking tickets. The moment you file your chapter 13 petition, the city must reinstate your driver's license or take that boot off your car.

CHAPTER 13 PAYMENTS

Payments are made in equal monthly installments for the duration of your reorganization to a person appointed by the bankruptcy court called the "chapter 13 trustee." The trustee administers the case and makes disbursements to creditors. Upon final payment, any unpaid unsecured balances are discharged like in a chapter 7 - FOREVER!

chapter 13 bankruptcy Timeline

Sec. 341 Meeting

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within 6 to 8 weeks

1st Plan Payment

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due within 30 days from filing

Case Filed - Stay in effect!

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DAY 1

Plan Confirmation

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shortly after meeting of creditors

Pre-Discharge Credit Counseling

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around time of last payment

Last Plan Payment

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3 to 5 Years

DISCHARGE!

shortly after last payment

Chapter 13 Benefits in greater detail

Because Congress would rather have you file chapter 13 instead of chapter 7, incentives were added for you to do so. The main incentives are discussed in the categories below:

Calculating the Plan Period and Monthly Payment

The panels below explain how the plan period and the monthly payment is calculated:

Plan Period - "For how long will I have to make chapter 13 plan payments?"

The "applicable plan period" cannot be less than 36 months nor more than 60 months in duration.


The plan period cannot be less than 60 months if your household income is above the median income level for Illinois. If your income is less than the median, your plan period cannot be less than 36 months, but can be as long as 60 months.


To calculate the chapter 13 plan period for your situation, use the following formula:

FIRST, calculate your Annualized Current Monthly Income ("CMI").

  • 1. total your GROSS income from ALL sources, except Social Security, received in the last 6 months preceding the month you are filing.
  • 2. divide that total by 6 to get the CMI.
  • 3. multiply the CMI by 12 to get your Annualized CMI.
    • Take the Annualized CMI from step #3 and move to part 2.
      The CMI from step #2 is used to figure out the amount of your monthly payment.

Second, compare your Annualized CMI with the applicable Illinois median income for your household size (#2 to the right).

  • - If your annualized CMI is below the Illinois median, you are eligible for the 36-month plan period.
  • - If your annualized CMI is above the Illinois median, you cannot propose a plan period of less than 60 months.
  • plan duration / BKguy nutshell:

      #1. Calculate your Annualized-CMI
    • - average monthly GROSS income from ALL sources (except Social Security Act income) for 6 months prior to month of filing is your CMI
    • - includes regular household contributions from family members
    • - includes income of spouse even if not filing with you if you are not separated and living in same household
    • - CMI above multiplied by 12= Annualized-CMI
      #2. above / below Illinois Median Income Level?
    • One Person Household: Annual: $47,485; Monthly: $3,958
    • Two Person Household: Annual: $59,861; Monthly: $4,989
    • Three Person Household: Annual: $68,721; Monthly: $5,727
    • Four Person Household: Annual: $80,776; Monthly: $6,732
    • Five Person Household: Annual: $88,876; Monthly: $7,407
    • Six Person Household: Annual: $96,976; Monthly: $8,082
    • Seven Person Household: Annual: $105,076; Monthly: $8,757
    • Eight Person Household: Annual: $113,176; Monthly: $9,432
    • For Additional Household Member in excess of 4: add $8,100 Annually / $675 Monthly
    • *Illinois Median Income Table effective as of April 01, 2013

    Monthly Payment - "What will be the amount of my chapter 13 payment?"

    The monthly payment amount is usually all of your disposable monthly income ("DMI") unless you are paying back your unsecured creditors in full. Your DMI consists of your Current Monthly Income (CMI) (calculation discussed in the panel above) REDUCED by monthly secured debt expenses, priority claim expenses, and either actual household expenses or statutory household expenses.


    If you qualified for the 36-month chapter 13 plan period you are allowed to use your actual household expenses as long as they are "reasonable and necessary."


    If, on the other hand, you have to propose a chapter 13 plan for the full 60-month period, you must use statutory expenses as outlined by the IRS.


    So, your CMI can be reduced by the following:


    (1) Payments on secured debts such as your mortgage, car, furniture, or any other property as long as the payments are not excessive and the property is necessary to your reorganization.


    (2) Payments on priority debts that cannot be discharged in bankruptcy such as alimony or child support, and certain unpaid income taxes.


    (3) Payroll taxes and deductions such as health insurance, certain 401(k) contributions, union dues, etc..


    (4) Reasonable and necessary household living expenses such as rent, food, utilities, transportation, etc.. Although these are calculated in one of two ways as mentioned above:

    1. If your income is above the median income level (see panel above), you must use statutorily allowed expenses as provided by the IRS.
    2. If your income is below the median income level (see panel above), you are allowed to use actual household expenses as long as they are not excessive.

    Once your plan is approved by the bankruptcy judge, the monthly payment becomes binding on all parties for the duration of the plan. However, it is possible to change the payment amount to reflect either an increase or decrease in income during the plan period. This process is called "modification," and requires a court hearing.

    monthly payment / BKguy nutshell:

    • - your disposable monthly income
    • - calculated at the outset of the case
    • - can be modified during plan period to reflect increase of decrease in income