Phoenix Bankruptcy Law News

3 Things to Know about Chapter 13 Bankruptcy

We know that filing for bankruptcy is never a pleasant experience, but it is often the most prudent way to get your finances back in order. Between March 2011 and March 2012, over 79,000 people filed for Chapter 13 Bankruptcy in the 9th Circuit.

With so many individuals choosing to file for Chapter 13 Bankruptcy in Arizona and elsewhere in the 9th Circuit, you should be keep in mind these three things before, during, and after you choose to file.

1. Before Filing

It is important before filing for Chapter 13 Bankrupcy that you determine whether you are eligible to file at all. In order to file for bankrupcy under Chapter 13 you must:

  • Not Be A Business: Corporations and LLCs cannot file for Chapter 13 Bankrupcy and must instead file under Chapter 11.
  • Not Have A Recent Prior Bankrupcy: If you discharged your debt under Chapter 13 within the last two years, or Chapter 7 within the last four years, you cannot file for Chapter 13.
  • Finish Credit Counseling: You must provide a certificate of proof and any debt management plans created during counseling to the bankrupcy court 180 days before filing.
  • Not Too Much Debt: You may have no more than $336,900 in unsecured debt (debts not tied to property, e.g. credit card debt), and you many have no more than $1,010,650 in secured debt.
  • File Tax Returns: You must provide proof of filing state and federal income tax returns for the last four years.

2. During Chapter 13 Bankrupcy

Once you've collected your finances and determined you're eligible to file under Chapter 13, it is important to keep the following in mind.

  • Repayment Plan: A repayment plan is required under Chapter 13, and it outlines the "priority debts" which you must pay in full. Priority debts include child support payments and unpaid taxes. Your repayment plan will also include any secured debts, such as home and car payments, and any unsecured debts.
  • Repayment is Based on Income: Repayment typically comes in the form of bi-weekly or monthly payments made to the bankrupcy trustee. These payments are based on your income and a proper repayment plan will take into account your current assets and income in calculating your payments.
  • Make Your Payments: This may seem like common sense, but adhering to a strict budget with your payment plan in mind will ensure that you complete the plan.

If you have regular income, set up payroll deductions so that you will make your bankrupcy payments automatically when you receive a paycheck.

3. After Satisfying Your Debts

Once you've completed your payment plan, you want to have something left to call your own. Every state has homestead laws which provide that a certain portion of your property will be off-limits to creditors (family home, one car, etc.). Arizona law allows up to $100,000 in property may be designated as "homestead."

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