Are you thinking about filing for personal bankruptcy? There are numerous situations in which Chapter 13 might be the best solution for you. For instance, are you behind on mortgage payments and trying to find a way to prevent foreclosure? Chapter 13 bankruptcy can put a stay on foreclosure proceedings to help you keep your house. Do you want to avoid liquidating your assets while you find a way to manage your debts? Chapter 13 bankruptcy does not require liquidation and can provide a way for you to repay creditors and get a fresh start on your finances. Did you fail to meet the “means test” for Chapter 7 bankruptcy? You may be able to file for Chapter 13 bankruptcy instead.

If you have questions about why Chapter 13 bankruptcy might be right for you, an Arizona Chapter 13 attorney can help.

How Does a Chapter 13 Bankruptcy Work?

Chapter 13 bankruptcies are quite different from Chapter 7 bankruptcies in that they do not require a debtor to liquidate assets. Instead, in filing for Chapter 13 bankruptcy, the debtor develops a “repayment plan” that will take between three and five years. The United States Bankruptcy Court for the District of Arizona provides information about Chapter 13 repayment plans as well as sample forms for developing a repayment plan. As part of that repayment plan, the debtor lists what she or he owes and makes a plan to pay off part or all of those debts from her or his future income. How does this process work in practice?

Once the debtor proposes a repayment plan, she or he will make payments to a bankruptcy trustee who will repay creditors the amounts specified as part of the repayment plan. In some situations, the debtor also may submit certain property to the trustee in order to help repay creditors. In the repayment plan, the debtor will need to list the following:

  •  Name of the creditor;
  • Description of the property; and
  •  Monthly amount to repay the creditor.

The court must approve the repayment plan before it can take effect. As long as the debtor abides by the repayment plan until it is completed, then the debtor will have a fresh start at the time of the plan’s completion.

Am I Eligible for Chapter 13 Bankruptcy?

Under federal law, an individual (or a business) is eligible to file for Chapter 13 bankruptcy unless the individual has unsecured debts of $383,175 or more or secured debts of $1,149,525 or more. The only other issue that can make an individual ineligible for Chapter 13 bankruptcy is if she or he has filed for bankruptcy under any chapter (including Chapter 13) within the last 180 days and the bankruptcy petition was dismissed.

When an individual is not eligible for Chapter 7 because of an inability to meet the “means test,” that debtor typically still can file for Chapter 13 bankruptcy.


When to File Chapter 13 Bankruptcy

Over 90% of people who file bankruptcy file Chapter 7 bankruptcy. Chapter 13 is used only in very specific circumstances. You would only consider a Chapter 13 bankruptcy if:

  • You have had a prior bankruptcy discharge in the last eight years. If you have never filed for bankruptcy, or it has been over eight years since you filed, you should consider a Chapter 7 bankruptcy.
  • Your income is higher than the mean income in the state, or you cannot pass the means test. There are two ways to qualify for a Chapter 7 bankruptcy. You can earn less than the mean income in the state. This number depends on how many people you are taking care of with the money you make. The larger your household, the more money you can make and still qualify for a Chapter 7 bankruptcy. Even if you earn more than the mean income in the state, you can still qualify for Chapter 7 bankruptcy. If you are able to pass the Bankruptcy Means Test, you can still file chapter 7. The Means Test takes into account more of your actual expenses. For example, if you have ongoing medical expenses, or taxes, or even student loans that are not going to be discharged. You can use expenses that will not be discharged to reduce your disposable income. If your disposable income gets reduced, you might qualify for Chapter 7 bankruptcy.
  • You are behind on payments for a secured asset you want to keep. If you are way behind on payments for your home or your car, and you want to keep that asset, you might consider chapter 13 bankruptcy. Alternatively, if the creditor is willing to work with you on the payments and not repossess or foreclose, you still might not need chapter 13.
  • You want to discharge marital debt, tax debt, or some other debt that cannot be discharged in Chapter 7. Chapter 13 is able to discharge a lot more debt than Chapter 7 bankruptcy. Let your bankruptcy lawyer tell you if you would benefit from a Chapter 13 bankruptcy by discharging a debt that would survive a Chapter 7. For example, if you were ordered to pay a lot of debt as a result of a divorce or if you have a lot of tax debt. That debt might survive a Chapter 7 bankruptcy, but it would likely be discharged in Chapter 13.
  • You want to control your student loan payments. If you have aggressive student loan collectors, you can manage the collection through Chapter 13. The student loan collectors have to take whatever the court tells them, and in Chapter 13, that amount can be very low. They cannot garnish or chase you. They simply have to take what the court gives them for up to five years.
  • You have assets that are not exempt. The Arizona exemptions make it so that most of the assets you would need are not part of your bankruptcy. However, if you have assets that are not necessary, like a rental home or too much equity in a home or car, you might consider Chapter 13. In Chapter 13, you would not have to sell the rental house or the expensive house or car; you could simply make payments to the court for the nonexempt portion. You keep your stuff and make affordable payments. What could be better?

There are other less obvious reasons to consider chapter 13, but most people simply do not have these issues. Most people, over 90%, will be better served with chapter 7 bankruptcy. However, chapter 13 is a very good option.

Chapter 13 Does Not Mean Simply Repaying Your Debt

Chapter 13 does not mean you simply repay your debt. In fact, most people pay a very small portion of their unsecured debt and get the same discharge as a Chapter 7. For example, let’s say you earn less than the mean income in the state. However, you are forced into a Chapter 13 bankruptcy because you have had a Chapter 7 discharge in the last eight years. The Chapter 13 payments could be as low as $200 a month for 36 months. At the end of that time, any unpaid debt is discharged, just like in a Chapter 7.

You Can Declare Bankruptcy and Still Keep Your Property

If you are wallowing in debt and looking for a way out, it is not necessary to risk losing everything. While it is possible to simply walk away from your debt under some forms of bankruptcy, it also is possible to accept responsibility for your debt, but at a reduced level, and move forward with your life while keeping your home and other assets.

In Arizona, Nevada, and Colorado, the bankruptcy attorneys of Bankruptcy Law Network, LLC can help you make the right choice. While sometimes the best choice is to walk away, sometimes that is too much to lose. That’s where Chapter 13 bankruptcy comes in.

Unlike Chapter 7, known sometimes as “liquidation bankruptcy,” Chapter 13 allows you to hang onto your assets. This is particularly useful for small-business owners. For smaller businesses, such as a sole proprietorship, Chapter 13 allows for the reorganization of debt so that the business can continue while repaying a discounted amount of debt. The business owner can repay a portion of the business’s debt under a court-supervised repayment plan and keep the business going. There are eligibility requirements to qualify for a small business filing under Chapter 13, among them being that the business must generate enough income to make repayment of some portion of the debt feasible.

Chapter 13 is sometimes called a “wage earner’s plan.” If you have income and are willing to devise a plan to pay back some of your debt over a period of three to five years, Chapter 13 might be your best choice. Chapter 13 gives individuals an opportunity to save their homes from foreclosure. A Chapter 13 filing halts foreclosure proceedings and presents the opportunity to cure mortgage delinquencies over time. The debt cannot be eliminated or reduced, but a Chapter 13 filing presents an opportunity to same your home.

Chapter 13 also allows a sole-proprietorship business to continue operating with restructured debt. This presents an obvious benefit to a small-business owner who wants to continue operating the business and is able to do so with a restructured debt. Chapter 13 is usually beneficial in cases in which a sole proprietor has significant assets that are necessary to continue operating but would be reachable by the trustee in a Chapter 7 bankruptcy.

The Advantages of Filing Chapter 13 Bankruptcy in Arizona

Not all people benefit from filing Chapter 13. If you qualify for Chapter 7 and wish to have your debts fully discharged, that route may be best for you over the long term. For many people, that is not an option for one or more reasons. Some of the benefits of Chapter 13 specifically include:

Keep your home

All assets are protected in Chapter 13 unless you decide that you wish to release them. That means your home may be protected.

One of the core benefits of Chapter 13 is that the court will work between you and your lender to get caught up on payments. If you are currently behind on your mortgage, this method allows you to work with the court to restructure the amount you are behind on to make your loan current again. This can take place over a 3 to 5-year period, which can help to alleviate many of your worries about losing your home in foreclosure.

You may lower your payments

If you are currently behind on any of your debts, Chapter 13 may help you to get caught up by reworking your payments. That is, you may be able to secure a lower payment if that makes it easier for you to repay your debt. If you are behind on your car loan, for example, the court may help you to rework or restructure the loan to make it more affordable to you.

This may include reducing the amount you owe down to what the car is actually worth or reducing the interest you are paying on it. This is done on a very case-by-case basis. You can get caught up on these loans over the bankruptcy period.

It may protect co-signers

If you have co-signers on a loan with you, such as a parent on a car loan or a friend on a mortgage, Chapter 13 protects them. That means that the lender cannot go after them to repay the debt you owe. If you did not file bankruptcy, they may be able to seek out payment from the co-signer. If you have any loans with a co-signer, it is critical to consider the benefits of filing Chapter 13 in Phoenix.

You no longer have to deal with your creditors

When you file for Chapter 13, the bankruptcy court becomes your go-to organization for paying your debt. You pay them each month. They then pay your creditors. In this process, you no longer have to deal with creditors directly. That means they do not call you to harass you, and they cannot make you feel bad about being behind on your loan.

Some debt may be discharged

After your 3 to 5 year repayment period, the court can elect to discharge remaining debt. For example, if not all of your credit card debt was paid off during that time, but you made payments on time and upheld the agreement, the court may discharge the rest of that debt, alleviating your financial burden.

You may be able to file Chapter 13 if you filed bankruptcy in the past

Bankruptcy laws state that you cannot file Chapter 13 bankruptcy if you filed bankruptcy in the last 180 days. If your previous bankruptcy was dismissed because you did not appear before the court or for other reasons, you may be denied.

However, unlike between Chapter 7 bankruptcies, you do not have to wait as long before you can file again. If you file Chapter 7 bankruptcy, you must wait at least 6 years before you can file Chapter 7 again. However, you may be able to file Chapter 13 before that.


Speak with an Arizona Chapter 13 Lawyer

If you have questions about filing for consumer bankruptcy or how the automatic stay in Chapter 13 can help you avoid foreclosure, an experienced Arizona Chapter 13 lawyer can speak with you about your situation.

How Does Chapter 13 Work?

In general, when the debtor files a Chapter 13 bankruptcy petition, he files a repayment plan with the petition or no more than 14 days after the petition. The court appoints a trustee to administer the repayment plan. The plan must be approved by the court. The plan, based on the debtor’s income, provides for a set amount to be paid each month to the trustee, who distributes the money to the creditors on a basis set forth in the repayment plan. That plan may provide for creditors to receive less than they actually are owed. The amount repaid depends upon the debtor’s ability to repay. Unsecured debts do not need to be repaid in full so long as the trustee is satisfied that the debtor is paying as much as possible into the repayment plan. However, unsecured creditors must receive at least as much as they would have had the debtor filed for bankruptcy under Chapter 7, and the debtor’s assets were liquidated to pay the unsecured creditors’ claims.

In addition to unsecured creditors, there are priority claims and secured claims. Priority claims fall into categories set in the bankruptcy code and include most taxes and the costs of filing for bankruptcy, including court fees and the debtor’s attorney fees. Secured claims include such things as auto loans and home mortgages, where the lender can repossess the collateral. Priority claims must be paid in full. Holders of secured claims must receive the value of the collateral. Payments on secured claims can go beyond the term of the repayment plan approved by the bankruptcy court and can extend up to the full length of the original payment plan, such as 30 years for a mortgage.

No matter what chapter you file under, bankruptcy cannot eliminate all debts. Child support and alimony payments aren’t dischargeable. Student loans and unpaid taxes will also stay with you. However, a filing under Chapter 13 can give you breathing room by halting collection actions and allowing you to establish a plan to repay what you can while also providing the opportunity to keep your house, your car, and your business.

Bankruptcy law is complex and to get a repayment plan approved under Chapter 13 requires a slew of related documents establishing what the debtor owes, to whom and for what, as well as how much the debtor earns, from whom, and how frequently. There are numerous hoops to jump through, and it is best not to negotiate without assistance. Experienced bankruptcy counsel can help smooth your journey through bankruptcy and, in all likelihood, find ways to make that journey more financially beneficial for you.

How to Make Your Chapter 13 Plan Work

Once you enter into a Chapter 13 bankruptcy repayment plan, that plan is your obligation to maintain. The court is not tasked with making sure you make payments. Instead, it is up to you to ensure that you follow through with all agreements you make. Not doing so could lead to the court dismissing your bankruptcy petition. That means lenders could again seek legal action against you.

There are various steps you can take to help make it easier for you to meet the obligations of your Chapter 13 plan. Follow these tips:

  • Always ensure that you provide accurate information to the bankruptcy court and your Chapter 13 bankruptcy attorney when creating a repayment plan. This information can help ensure that you are not overcommitting to payments you cannot make.
  • Make your payments on time. Setting these up to be automatic payments is by far one of the most important decisions you can make. This can be done through a payroll deduction or with an automatic payment set up through your bank. The benefit is that this process eliminates the risk of missing a payment.
  • Set up and maintain a budget. One of the best reasons to pursue this type of bankruptcy is because it forces you to make better financial decisions for yourself. Over time, this will allow you to become financially savvy, but you will need to stick with a budget to ensure you make the best decisions.
  • Pay all of your domestic support obligations on time. This includes any alimony and child support that you have. Paying your bankruptcy court-ordered payment is essential, but you cannot fall behind on your domestic support obligations either.
  • Know that if you fall behind on your plan, the court can seek Chapter 7 bankruptcy liquidation. That means the court can seize assets to sell to pay off your creditors. It is in your best interest to work with the court to avoid this risk.

If you find yourself in trouble for any reason, especially if you become unable to work or suffer the loss of a job, reach out to your Phoenix bankruptcy attorney for immediate help. This is the best way to minimize any negative impact on your bankruptcy repayment plan.

What Is a Chapter 13 Hardship Discharge?

In most situations, people work through the chapter 13 bankruptcy as agreed. This allows for better financial health over time. There may be situations where this can occur, and a Chapter 13 hardship discharge is necessary. If there are situations in which a discharge may be necessary, our bankruptcy attorneys will help you navigate the process.

A hardship discharge in chapter 13 only occurs in situations where you have circumstances that fit the court’s rules that make it impossible for you to complete the plan. There are various potential reasons this could occur, but the court expects you to do whatever you can to stick with the plan.

You may be able to pursue a hardship discharge, meaning the plan is canceled, and you no longer have to continue to make payments. This can happen in situations where you can prove the following:

  • You cannot make payments as agreed due to circumstances beyond your control. These must be reasons that are due to no fault of your own.
  • Your creditors have received at least as much as they would have if you filed Chapter 7 bankruptcy instead.
  • There is no opportunity or benefit from a modification to the existing Chapter 13 bankruptcy plan.

Perhaps you are in a car accident and no longer can work. You meet the requirements for disability. This situation could warrant a discharge of your Chapter 13 plan. Note that the occurrence needs to be permanent. If you lose a job, you may still be required to find a new one. If you were hurt or ill for a period of time, that does not automatically lead to discharge.

What to Expect After a Chapter 13 Bankruptcy

Working through the 3 to 5-year repayment plan takes time, and there will be instances in which this can be a very challenging period. Once you complete it, you are then able to stop making payments to the bankruptcy court.

You will:

  • Receive a letter that states that your bankruptcy case was complete.
  • You will learn what, if any, additional payments you are owed.
  • Any type of debt that you had previously agreed to repay, such as your mortgage or car loans, must continue to be paid as agreed.
  • If you have debt remaining, your letter will tell you if it is discharged, meaning you no longer have to pay it back at all.
  • Learn what steps you need to take if a creditor requests payment of discharged debt.

In many situations, Chapter 13 bankruptcy provides financial relief. Yet, you will likely have much more work to do. You are likely to have to continue to work to rebuild your credit and you may find accessing new loans to be difficult to do for some time.

With the help of your bankruptcy attorney, you can begin to rebuild your financial future. Reaching this point is a big one, and it can help you to start on the path to recovering your financial health over the long term.

Chapter 13 is Not For Everybody

Importantly, only some people can qualify for Chapter 13. In addition, even if you do, it may not be the best option for you under the circumstances. For this reason, you should always speak to an attorney before filing anything with the court that could affect your legal rights. We will review your case at no cost to you and help you determine what type of bankruptcy, if any, is right for you.


Contact Bankruptcy Law Network, LLC Today

If you are considering bankruptcy in Colorado, Nevada, or Arizona, you need to consult with an experienced bankruptcy lawyer to explore your options. Whether you are a homeowner struggling to keep your house while paying your other bills or a small-business owner who wants to keep the business going, there is a way under bankruptcy law to make things work. The bankruptcy lawyers of Bankruptcy Law Network, LLC can present you with all of your options and guide you to making the right choices. You can reach us at (866) 780-4855 or through our online contact form.