Chapter 13 bankruptcies are known as reorganizations. They differ considerably from Chapter 7 liquidations because rather than selling off property to pay down debts, the filer uses their disposable income for the next three to five years to pay off a portion of their debt.
Crystal Lake, IL Chapter 13 Bankruptcy Eligibility
The court checks two things when looking at whether a person may file a Chapter 13 bankruptcy, their income and their debt load. If the person does not have enough income to fund a repayment plan, or if the income does not come in regularly enough to ensure that they meet payments, then they cannot file for Chapter 13 relief. If the person’s debt burdens are too high, more than $ 1,149,525 in secured debt or more than $383,175 in unsecured debt, then the person cannot file for Chapter 13. A secured debt is a debt that a person offered a piece of collateral for, like a house for a mortgage, that the person agreed to give up if they could not make their payments.
The Chapter 13 Process in Crystal Lake
Filing for Chapter 13 requires several steps. First, a filer must complete a credit counseling course from a state-approved agency to ensure that they do need to file for bankruptcy. Then, a filer must complete numerous forms detailing their assets, income, and debts, and pay the bankruptcy filing fee to initiate the process.
Repayment Plan: The Chapter 13 repayment plan lays out exactly how much the filer will pay to each creditor over the course of their bankruptcy. The filer proposes this plan when they fill out the preliminary paperwork for starting the bankruptcy process.
How Much Will You Pay: Chapter 13 plans break the filer’s debts down into three categories: priority, secured, and unsecured. Exactly how much of each the filer has will determine how much they must repay. Priority debts include things like child support, certain back taxes, and employee wages. A filer must pay these debts off in full over the course of their plan. Secured debts, debts with collateral pledged to them, also require regular payments, in addition to payments making up for falling behind on the debt. Once the filer pays these debts, the rest of their disposable income must go to unsecured debts, like credit cards. The filer does not need to pay these debts in full; they must merely show that any leftover income goes towards them.
How Long the Repayment Plan Will Last: The length of a person’s repayment plan depends upon their monthly income. If their income exceeds the state median, then they must use a five year repayment plan, but if their income falls below the median, they can use a three year plan instead. Additionally, the plan may end early if the filer pays off all their debt before the plan is scheduled to end.
If You Cannot Make Plan Payments: The law makes certain options available to those whose financial situation changes in the middle of a repayment plan. The court may modify the repayment plan to account for the person’s new income, or it may even eliminate the debts due to financial hardship. Alternatively, the court may let the filer convert their case into a Chapter 7 bankruptcy, which would better suit their new financial situation.
How a Chapter 13 Case Ends: The Chapter 13 case ends at the end of the repayment plan or payment of the filer’s debts in full. Additionally, filers must show that they are not behind on their child support obligations, and they must complete another budget counseling course before the bankruptcy can officially end.
To learn if Chapter 13 bankruptcy is right for you, please contact Newland & Newland today. We provide support to clients in Lake County, McHenry County, Cook County, DuPage County, Crystal Lake, Arlington Heights, Barrington, Palatine, Rolling Meadows and throughout Northern Illinois.