A Chapter 13 Bankruptcy is different from a Chapter 7 Bankruptcy in that the debtor makes monthly payments to a Chapter 13 trustee to be applied to payment of debts. People file Chapter 13 Bankruptcy when their income is too high to be able to file Chapter 7 Bankruptcy. Income limits vary based on family size. For example, the income limit for a single person to file Chapter 7 Bankruptcy as of November 1, 2016 is an annual gross income of $52,127. This amount increases to $70,006 for a family of two, and $100,494 for a family of four.
People also file Chapter 13 Bankruptcy when they want to force a mortgage company to take past due monthly payments to cure a default in the mortgage. A Chapter 13 Bankruptcy can also be used to force the IRS to take monthly payments to pay past due taxes.
An attorney prepares the same petition for a Chapter 13 case the attorney would in a Chapter 7 case, except a Chapter 13 petition also includes a payment plan, which sets forth the amount of the monthly payments. A payment plan can last 36 or 60 months. In nearly all cases, the court requires a 60-month payment plan.
The monthly payment amount is calculated by deducting monthly expenses from monthly income to determine a disposable monthly payment amount. The debtor will then make monthly payments in this amount to the Chapter 13 trustee for the term of the plan. The Chapter 13 trustee will distribute the payments on a pro rata basis to creditors who file claims. Also, the debtor will need to pay any tax refunds the debtor receives during the payment plan to the trustee to be turned over to creditors.
Any amount of debts which remain unpaid after the period of the payment plan, are discharged like they would be in a Chapter 7 Bankruptcy case.