Chapter 13 Bankruptcy in Iowa
Chapter 13 bankruptcy is available for individuals that do not qualify for chapter 7 bankruptcy and for those which it would be more advantageous. There are 3 main reasons people might file a chapter 13 bankruptcy.
Reason 1: Income is Too High for Qualifying for Chapter 7
The most common reason for someone to file for chapter 13 bankruptcy is their income is too high to qualify for chapter 7. People of all income levels fall behind on debts. However, the Bankruptcy Code requires people who have more disposable income to make an effort to repay creditors in chapter 13. One misconception about chapter 13 is that there is a requirement to repay 100% of the debts. The only requirement is to make your best effort. We file a budget with the court, including all your reasonable and necessary household expenses. Whatever the difference between your household net pay and your reasonable monthly expenses would be your expected payment. Plan payments vary quite a bit between different cases, as everyone’s budget is unique. Some cases are able to repay 100% to all creditors, while others pay back much less. Most people find the required payment in chapter 13 more reasonable than trying to pay all the creditors on their own. Chapter 13 is designed to be flexible so if your income and expenses change, your payment can change too. Usually chapter 13 plan payments are for 60 months, unless 100% of the debts are repaid sooner. At the end of the 5 years any balances left on nearly all the debts (with the exception of student loans and other nondischargeable debts) are discharged just like in a chapter 7. Also, some cases start out as chapter 13 and end up converting to chapter 7 if there is a significant enough change in financial situation.
Reason 2: Catch Up Arrearage/Missed Payments
A second reason someone might want to consider filing for chapter 13 bankruptcy, even if he or she qualifies for chapter 7, is to catch up arrearage/missed payments on a house or car. If you are behind on your mortgage and can’t get the mortgage company to work with you, chapter 13 will at least allow you an opportunity to catch up the arrearage over 60 months. You have to be able to afford to resume paying the regular monthly payment immediately along with all your other regular household expenses (absent unsecured debt like credit cards, personal loans, student loans, medical bills, etc.). In addition to your regular expenses, you have to be able to afford to at least pay off the total arrearage/missed payments and trustees administrative fee over 60 months.
Reason 3: Too Soon To File For Chapter 7 Again
A third reason someone files a chapter 13 bankruptcy is because he or she filed a chapter 7 too recently. You are only eligible to receive a discharge in chapter 7 every 8 years. You are eligible to file and receive a discharge in chapter 13 4 years after you filed a chapter 7 bankruptcy. If your income is below median, you might only be required to make payments for 36 months, instead of the more common 60 months.
Chapter 13 Bankruptcy Payment Plans
In the Southern District of Iowa you are expected to turn over tax refunds received and any net bonuses, unless already averaged into your income. Typically chapter 13 plans last for 5 years (60 months), unless plan payments are sufficient to repay 100% of creditors sooner.