As to the limitations on a Chapter 13 bankruptcy, your debt has to be under $394,725 in unsecured loans (credit card, personal loans) and less than $1,184,200 in secured loans for chapter 13 help to be permitted.
Loans against houses and cars are the most common examples of “secured” loans.
Unsecured loans are oftentimes best handled through a Chapter 7. When you want to protect the amount of allowed equity in your home, up to a little over $25,000 per debtor, Chapter 13 can help.
Some debts cannot be discharged in a Chapter 7 case. Debts arising from outstanding alimony, child support, and arrearages owed to the IRS are non-dischargeable. This avoids protection for those who would allow such debts to accumulate intentionally and in bad faith. Under the right circumstances, however, portions or all of these debts may be dischargeable in Chapter 13.
Once you are successful in getting a Chapter 13 discharge, remaining non-secured debts for which you do not have disposable income to pay are forgiven, with the exception of student loans (which are generally only dischargeable in cases of demonstrable hardship).
Chapter 13 gives the debtor a 3-5 years to make payments, including what may be discounted amounts on installment loans, while some debts may be kept current outside of the Bankruptcy Plan.
In chapter 13, the amount of your payment each month is determined by the types of debts and your disposable income.
A standardized formula is used to determine your disposable income, which boils down to your income less normal expenses. Because a bankruptcy discharge is considered extraordinary relief, exorbitant expenses will not be allowed to decrease your disposable income for making Plan payments. Your assigned bankruptcy Trustee will review your Plan and give feedback to the Court and you as to whether your Plan meets expectations to be Court-approved as a valid restructuring plan.
If the debtor misses payments or is acting outside of the requirements of the Court, the court may dismiss her or his Chapter 13. Sometimes Chapter 13 cases are converted into Chapter 7 cases where the Trustee finds that a debtor has excess property that cannot be protected by applicable exemptions and the sale of that property is necessary to meet Bankruptcy Code requirements.
Some bankruptcy cases are straight-forward. Others can involve imaginative claims by creditors and should not be handled without competent representation. Always seek the advice of an attorney to avoid the unpleasant surprise that yours is a case more complex than you imagined.
Often times a dismissed Chapter 13 case can be revived. Get legal help before taking “No” for an answer.