Chapter 13 Bankruptcy
If you’ve hit some financial difficulties in the last few years and you’ve fallen behind in your debt, you’re not alone. Losing a job or changing jobs, inflation, and other factors have made millions of people who are working start to struggle financially. If you’re still working but you’re falling so far behind on your debt that you’re worried you’ll never get out, Chapter 13 bankruptcy may be a good option for you. Chapter 13 bankruptcy can be a new start that will allow you to get out of debt without losing all of the things you’ve worked hard for.
What is Chapter 13 Bankruptcy?
There are several different types of bankruptcy that can help people who are struggling with debt. The types of bankruptcy that are most often used are Chapter 7, Chapter 11, and Chapter 13 bankruptcy.
Chapter 7 bankruptcy is an extreme type of bankruptcy. The court doesn’t require people using Chapter 7 bankruptcy to file a repayment plan with the court but the court will order that some of the individual’s assets be sold to pay creditors.
Chapter 11 bankruptcy is for businesses. It gives businesses the chance to restructure their finances, sell off some assets, and create a payment plan for their creditors while still allowing the business to run with normal operations day to day.
Chapter 13 bankruptcy is for consumers or individuals that are working and earning money but still can’t keep up with their debt. It’s often called “wage-earner bankruptcy”. With this type of bankruptcy people will need to create a repayment plan and get the court and their creditors to agree to it. Typically the repayment plan structures the repayment so that it will take the individual 3-5 years to pay off all the creditors. But, the individual can keep some of their assets like a house and a car so that they are able to continue working. If someone is in foreclosure and at risk of losing their home they can file for Chapter 13 bankruptcy to stop foreclosure proceedings.
However, there are some debts that can’t be eliminated in any type of bankruptcy including:
- Child support
- Alimony
- Unpaid taxes
- Student loans (unless you can prove “undue hardship”)
- Debts for personal injury or death you caused while driving under the influence of alcohol or drugs
- Debts you failed to list in your bankruptcy filing.
Even though you may not be able to discharge all of your debts with a Chapter 13 bankruptcy, filing for Chapter 13 bankruptcy can give you some breathing room to figure out how to tackle your debt.
How Does Chapter 13 Bankruptcy Work?
When you file for Chapter 13 bankruptcy all attempts to collect debts have to stop. That means if your home is in foreclosure the mortgage lender or bank must stop foreclosure proceedings. It also means that creditors can’t call you, call your work, send threatening letters, or in any way continue trying to collect debts. Filing for Chapter 13 bankruptcy puts a full stop on collection activity and can buy you some time to figure out how you want to move forward.
Next a payment plan is created. The high priority debts that you owe get paid first and they are usually paid in full. High priority debts like taxes. Next on the priority list is secured debt, usually your house and your car. You can keep these items as long as you start making regular payments on them, although you may be able to get a lower payment amount. Unsecured debt like credit card debt is at the bottom of the barrel. It’s written into the payment plan that as long as you pay the payments agreed to in the payment plan a percentage of your unsecured debt will be discharged or forgiven. That can help you climb out from under the pile of debt.
Take Mandatory Credit Counseling Course
180 days before you actually file for Chapter 13 bankruptcy you’ll need to complete a credit counseling program approved by the Department of Justice U.S. Trustee Program. This course will evaluate if you have enough income to repay your debt.
File Your Chapter 13 Bankruptcy Paperwork
When you actually file your Chapter 13 paperwork all collection activity against you must stop. You will get a letter from the clerk or court telling you the trustee appointed to your case. You will need to pay a filing fee and other fees when you file your papers.
Attend the 341 meeting of creditors
There will be a hearing with your creditors to establish a repayment plan. A week before the hearing you’ll need to turn in tax returns, paystubs, bank statements, and other documents to the court so that a repayment plan can be made based on the income that you have. At the hearing your repayment plan amounts and priorities will be set by the court.
Start Paying Your Chapter 13 Plan Payment
The month after you file your paperwork the repayments will begin. Typically the repayment plan is for five years of payments.
Complete the Confirmed Chapter 13 Plan
As long as you make all of your payment in full and on time the rest of your debt will be discharged at the end of the agreed upon payment plan and the rest of your debt will be discharged. You’ll have a fresh start. You will need to take another course at the end of your repayment plan so that you don’t get into the same situation again in the future.
Who Is Eligible For Chapter 13 Bankruptcy?
Anyone who meets these criteria can file for Chapter 13 bankruptcy:
- Have a steady income.
- Not filed for a Chapter 13 bankruptcy for two years, or a Chapter 7 for four years.
- Be current on your tax filings.
- Not have unsecured debt of more than $419,275, and your secured debt can’t be more than $1,257,850.
The details of the repayment plan and other aspects of Chapter 13 bankruptcy will be worked out between you and your creditors.
What Is the Difference Between Chapter 7 and Chapter 13 Bankruptcy?
The biggest difference between Chapter 7 bankruptcy and Chapter 13 bankruptcy is that when you file for Chapter 13 bankruptcy you are able to keep some assets like your house and your car. When you file for Chapter 7 bankruptcy all of your assets are liquidated so that all of the money can go to your creditors.
Another big difference between the two is that when you file for Chapter 13 bankruptcy some of your debts may be discharged when you complete the agreed up repayment plan.
When Do I File For Chapter 13 Bankruptcy?
If you’ve been thinking about filing for Chapter 13 bankruptcy the best thing to do is talk to a bankruptcy attorney that specializes in Chapter 13 bankruptcy and Chapter 7 bankruptcy. A bankruptcy lawyer can give you the best advice for your unique situation about what type of bankruptcy is going to help you accomplish your goals and when the best time to file is. But in general you should think about filing for Chapter 13 bankruptcy if your house is in foreclosure or if you’re getting lots of collection calls and letters at home and at work. All collection activity and foreclosure proceedings will stop once you have filed Chapter 13 bankruptcy papers.
How To File Chapter 13 Bankruptcy
If you’re thinking about filing for Chapter 13 bankruptcy you should know the steps involved in filing Chapter 13 bankruptcy which are:
Find A Bankruptcy Attorney
You need to speak with a qualified bankruptcy lawyer that can give you advice based on your financial situation, the state you live in, and other factors.
Gather Your Information
You will need to submit documents and personal information with your filing including:
- A list of creditors and the amounts you owe.
- Proof of income like pay stubs or bank records showing direct deposits.
- Any properties you own or apartment leases you are currently in.
- A breakdown of your monthly living expenses.
- All of your Federal tax returns and statements of unpaid taxes.
- First, find a bankruptcy lawyer who will give you a free evaluation and estimate on what you’ll have to pay to file.
- Proof you have completed a credit counseling course approved by the U.S. Department of Justice U.S. Trustee Program.
Once you have filed and your bankruptcy has been approved by the court you just need to keep making your payments. If you don’t make your payments the court could dismiss your bankruptcy and you’d be back at square one with no protection.
Speak With A Bankruptcy Lawyer
If you’re falling behind on your debt or you’re worried about losing your home because you got too far behind on your mortgage and you can’t catch up, Chapter 13 bankruptcy might be a good option for you. But you need to speak with a qualified bankruptcy attorney in your area that can give you personalized advice. Fill out a Free Case Evaluation form now to get connected to a participating, independent bankruptcy lawyer who may be able to help with your case.
