What is Chapter 13 Bankruptcy in North Carolina?

Chapter 13 is a flexible payment-funded bankruptcy for individuals. More than half of bankruptcies filed by people in Raleigh NC are filed as chapter 13 cases.

What's the Purpose of Chapter 13 Bankruptcy?

Chapter 13 is flexible, and depending on circumstances might be used for number of different purposes, including:

  1. Getting rid of the personal liability of debts by bankruptcy discharge.
  2. Paying off debts over time, in whole or part.
  3. Catching up past due debts, such as a mortgage.
  4. Restructuring certain secured loans.

How is a Chapter 13 Funded?

In chapter 13 bankruptcy, the bankruptcy debtor pays a monthly payment to the chapter 13 trustee. The trustee uses that payment to pay creditors and administrative costs. The payment might be large, if the plan proposes to pay several debts, or might be small if few debts need to be paid.

What Controls the Plan Payment?

The person who files the bankruptcy gets to propose the plan payment. However, the Bankruptcy Code provides particular rules which must be complied with in determining an acceptable payment. In short:

  1. Certain sorts of debts essentially have to be paid, such as child support arrears and recent taxes.
  2. Secured debts, such as mortgages and car loans, must be paid if the collateral is to be kept.
  3. Unsecured debts like credit cards and medical bills must be paid or partially paid if either (i) valuable assets are owned (the liquidation test) or (ii) there is disposable income under the means test.

How long is a Chapter 13 Bankruptcy?

A chapter 13 plan will normal run between three and five years. In certain cases, a plan can be shorter than three years, especially in cases filed in Raleigh NC.

What the limitations to Chapter 13?

Individuals with very high debt amounts (more than $383,175 unsecured or $1,149,525 secured) can't use chapter 13. Chapter 13 is also impractical when there is not a stable source of income with which to fund a chapter 13 plan.

More Information

We have an extensive collection of chapter 13 bankruptcy articles on our other site.