Chapter 13 Bankruptcy is a common and effective means of filing for bankruptcy for individuals — as opposed to businesses. I like to say that it is in many ways a form of debt consolidation. It is known as an “individual reorganization,” and for good reason, because it allows you to reorganize your finances, consolidate your debt and then pay back some of it over time.
However, there is a significant requirement to qualify for Chapter 13 bankruptcy. You must have some disposable income available each month in order to begin paying back some debt. Going forward, you will need to make a payment each month to a court-appointed trustee, and in my experience that amount is usually a minimum of $100 per month.
What, exactly, is disposable income? To figure that out we first take a look at all your sources of income. Then we list all of your regularly incurred monthly expenses. From there it’s a simple matter of arithmetic, subtracting your expenses from your income. If the amount left over each month is $100 or more, there’s a good chance you’re eligible for Chapter 13 bankruptcy.
Once the bankruptcy is in place, the process is pretty much automatic. Each month you send the court-appointed trustee a fixed payment and he or she uses that money to pay your creditors. A key benefit is this plan is that it puts all of your debt in one place and you pay it back over time through one central agent — the trustee.