Chapter 13 Bankruptcy
Everything You Need To Know And Understand About Chapter 13 Bankruptcy
When it comes to filing for bankruptcy, debtors are offered a range of options, all of which have pros and cons. A Chapter 13 Bankruptcy provides debtors with the chance to keep their home, and potentially some other important assets. It also allows people to restructure their debt and offers the possibility of creating a structured and more affordable repayment plan, which can last up to five years. Not everyone will be eligible; you will need to demonstrate that you have a monthly income, and there is a limit on the amount of debt you are allowed to have. Although it is an excellent option in certain situations, it will cause your credit a lot of damage, making it much more challenging to get credit in the future.
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Chapter 13 Bankruptcy
Chapter 13 bankruptcy is not an option for everyone, because first and foremost, you need to demonstrate that you have a regular income to qualify. Your debt is not forgiven; it is restructured so that you have a three to five-year repayment plan. Chapter 13 is probably the most flexible bankruptcy option, and it has the added advantage of allowing you to keep possession of your property.
Am I Eligible To File For Chapter 13?
Unlike most other bankruptcy options, Chapter 13 is simple to understand. The first condition is that you need to be able to demonstrate that you have a regular income. Bear in mind the aim of anyone entering into a Chapter 13 Bankruptcy is to repay their debt, albeit over a more extended period of time. Without a regular income, that would be impossible, which is why this is the first, and some would argue the most important condition. The amount of money that you earn is also directly linked to the length of the timeline for the repayment program. When the repayment plan is being created, the median level of income in the state is viewed as the barometer. If your income is higher than the median level in the state, then you will repay your debts over five years. If your income is below the state median level, then your repayment plan will be devised over three years.
Here are some things to consider if you are thinking about filing for Chapter 13.
- You must have a regular income - this is a dealbreaker.
- You must provide up-to-date tax returns and payments.
- If you have any unsecured debts, such as credit cards or personal loans, then they must have a combined total of less than $394,725. Likewise, any secured debts such as a mortgage or vehicle loans are not allowed to exceed $1,184,200.
- If you have had a bankruptcy dismissed in the last 180 days because you failed to comply, or failed to appear in the bankruptcy court, then you may be ineligible.
- To receive a discharge at the end of a Chapter 13 repayment plan, you are not permitted to have received a discharge from a Chapter 13 bankruptcy within the previous two years or from a Chapter 7, Chapter 11 and Chapter 12 within the last four years.
How Are Debts Repaid in A Chapter 13 Bankruptcy?
Another benefit of a Chapter 13 Bankruptcy, is that debtors are allowed to devise their own repayment plan, provided the court approves it. The repayment plan is the foundation upon which the Chapter 13 Bankruptcy is built, and to underline its importance, it will be written out on a federal form, or one from the local court. The plan will be very detailed and will provide
- The name of the trustee and how much they will get paid each month.
- The method of payment to the trustee
- The length of the agreement
Priority Debt - These types of debts take precedence, and include child support payments, student loans, and nearly all tax obligations.
Secured Debt - Any secured debt, such as a mortgage or a car loan, will have to be paid back over time. Any missed payments can also be brought current as a part of the process.
Unsecured Debt - Any payments, towards unsecured debt, such as credit card balances, are much more flexible. In some situations, they could be reduced, or even forgiven upon completion of the repayment plan. However, do not bank on this as there is no guarantee that it will happen.
The main benefit of the Chapter 13 bankruptcy process is that it provides debtors with some breathing space, by extending the loan period, and thus making the debt much more manageable. It also gives people in financial difficulty, the opportunity to save their home or vehicle from a foreclosure or repossession.
A Detailed Explanation of The Chapter 13 Process
The first thing to understand is that filing for bankruptcy, whichever chapter you choose is never going to be an overnight process. For Chapter 13, you should expect the process to take 95 days from the first day of filing the petition until the repayment plan is approved. Many people think that their bankruptcy is discharged at the end of the 95 days with the approval of the payment plan, but the discharge is not complete until the three to five-year payment plan is completed.
Listed below is the complete step by step process that everyone filing for Chapter 13 Bankruptcy must follow.
- Complete A Credit Counseling Course With An Approved Agency
- within 180 days before filing for bankruptcy - A key component of bankruptcy is the education aspect, in the hope that any further financial issues can be avoided. As a consequence, the counseling course is viewed as a critical component of the process.
- Complete all of the necessary paperwork, preferably with the help of an attorney, although this is not compulsory. You will need to provide
- A Full List Of All Of Your Creditors
- Evidence of Your Income
- Your Latest Tax Return
- A Comprehensive List of all Your Property and Valuables
- A List and Description of Your Living Expenses
- A Certificate Which Confirms That You Completed The Credit Counselling Course
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Once you have all of the necessary paperwork you need to
- File A Bankruptcy Petition - This will include $310 in fees. The petition should be filed at a local bankruptcy court. Once filed, you will then have a temporary pause placed on any debt obligations. Generally speaking, any foreclosure proceedings and most attempts at debt collection will cease until the repayment plan is complete.
- Submit Your Repayment Plan - Now that the pressure is slightly eased the next part of the process is to submit your repayment plan. The purpose of this plan is to explain how you intend to repay your lenders.
- Implement The Repayment Plan Within 30 Days - Do not wait for the repayment plan to be approved. By starting to make the payments, you will be tackling your debt and demonstrating your good intentions, and the fact that you can afford the plan you have submitted.
- A Trustee Will Be Assigned By The Court - To ensure impartiality, the court will appoint a trustee who will meet with your creditors and review the case.
- Attend A Creditors Meeting - Anywhere between 21 and 50 days after you have filed the trustee will set up a creditor meeting. You will have to attend and answer questions both about your debt, and your proposed repayment plan. The questions will be asked under oath.
- Attend A Confirmation Hearing - Within 45 days of attending the creditor meeting, a confirmation meeting will be arranged. A judge will be present at this meeting, and he or she will decide whether to approve the plan. If the plan is not approved, you have the option of modifying it to get it approved, or converting the filing to a Chapter 7 Bankruptcy.
- Keep Up With The Repayment Plan - It is critical that you now follow the repayment plan that you proposed for the next three or five years. The payments will go to the trustee, who will then distribute them to your creditors.
- The Bankruptcy Will Be Discharged - Once the repayment plan has been completed, and you have taken a debtor education course, once again from an approved agency, and you have met any and all other requirements, issued from the court, your bankruptcy will be discharged.
What Are The Benefits To Filing For Chapter 13
It is essential to understand the benefits and drawbacks of the different types of bankruptcy. There are a few advantages to filing for a Chapter 13 over a Chapter 7. There are also benefits to filing for a Chapter 13 as opposed to not filing for bankruptcy at all.
Keep Your Home - The most significant benefit by far of filing for a Chapter 13 Bankruptcy is that you can potentially save your home from being foreclosed. If you are behind on mortgage payments, your repayment plan should factor in a way to gradually let you catch up on your debts, and then hopefully all the worry and stress of losing your family home is removed.
One Simple Payment Every Month - Many people get into financial difficulties because they are trying to juggle too many small payments to too many different creditors. Under your repayment plan, you will have one payment to make every month, as all of your debts will have been consolidated. There is even a chance with the right negotiation that your payment will be lower.
It Is More Positive For Your Credit Score - Although your credit score should be the last of your concerns when filing for Bankruptcy, a Chapter 13 is much more preferable to a Chapter 7. This is because although your debt will not be repaid as per your original agreement, most or all of it will eventually be repaid. This means that a Chapter 13 Bankruptcy will only remain on your credit file for seven years. A Chapter 7 Bankruptcy, on the other hand, remains on your credit report for ten years.
Potential Protection For Co-Signers - When applying for a loan, some people may need to have a friend or family member co-sign for the debt. This means that the creditors can chase the co-signer should the debtor fall behind on payments. This can cause family or friendship problems and can be embarrassing for all parties. Unless they are authorized to by the bankruptcy court, creditors may not seek to collect a debt from a co-creditor.
So What If Any Are The Drawbacks To Filing A
Chapter 13 Bankruptcy?
It almost goes without saying that although there are benefits to be had from filing a Chapter 13 Bankruptcy, there will also be some negative aspects.
- Your Credit Score Will Be Badly Damaged— Filing for bankruptcy will put a huge hole in your credit score. It will do much more damage than missing a payment here or there, and the effects will be reflected on your score for seven years from the date of filing the petition. The amount which your score will drop is not fixed; it will depend on a range of different factors specific to your financial situation.
- You Might Struggle To Get New Credit — Because of the damage, your credit score will take, your ability to get new credit will be severely restricted. You might not think that this will be a problem, particularly if you are trying to get yourself out of debt, but bear in mind this could also prevent you from renting a new property, and some companies will run a credit check on you before offering you a job, so it could potentially affect your career prospects.
You Are In The Last Chance Saloon - Once you have filed for a Chapter 13 Bankruptcy, there is nowhere else to go. You are at the end of the line. You have committed in court to stick to the repayment plan that you suggested and was approved by the judge. ‘Any missed payments could mean the end of the Chapter 13 agreement, and it could also mean you have to forfeit any assets which you were trying to retain.
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Filing for bankruptcy is a serious decision that should not be taken lightly. A Chapter 13 Bankruptcy will impact on your credit score for seven years, but if you are in severe financial difficulty and have assets that you want to keep, then it could be a good choice for you. It is essential to understand that Chapter 13 Bankruptcy is only an option if you have a regular source of income. Before committing to the repayment plan, make sure that the payments you suggest are manageable. If you have any questions or are unsure about any aspect of filing for Chapter 13 Bankruptcy, do not hesitate to contact the team at Bankruptcy Help. We have many years of experience in the field and will ensure you get all of your questions answered.
Frequently Asked Questions
There usually are court costs associated with filing for bankruptcy, and the costs will vary depending on the type of bankruptcy, and your current financial situation. At the time of writing, the cost of filing for a Chapter 7 Bankruptcy is $306 and for a Chapter 13 Bankruptcy $281. Some courts may also charge an additional administration fee. The good news is that in most cases, it is possible to pay the filing fee in installments. Some courts may also waive the filing fee for a Chapter 7 Bankruptcy if you can demonstrate that your income is below a certain level, and the court decides not to allow you to pay the filing fee in installments. Whether you use a company like Bankruptcy Help or an attorney, there will be additional fees payable, and it is standard practice to pay upfront for those services, particularly in the case of a Chapter 7 Bankruptcy.
It is a common misconception, that once someone is declared bankrupt that all of their debts are discharged, but this is not the case. The first thing to be aware of is that bankruptcy will not cover any debts which were incurred after you filed for bankruptcy, and which were not mentioned during the filing process. There are other debts that are not covered by bankruptcy. These include but are not limited to
• Student Loans
• Any Fines That Are Owed To A Government Unit Such As A City or State
• Any Outstanding Debts For Income or Property Taxes
• Child Support or Alimony Debts
• Any Fines You Have Received As Part of a Criminal Prosecution
Debts that you have obtained fraudulently may not be discharged. For example, if before filing for bankruptcy, and knowing that this was your intention, you decide to go on a spending spree with your credit card, spending money on a vacation, then this may be considered fraud if it can be proven that you had no intention to pay the debt.
In total, there are four different types of bankruptcy available to individuals, and each has specific conditions that must be met.
Chapter 7 - Perhaps the most well known and severe type of bankruptcy. This typically takes between two and three months and involves the sale of your residential property to pay off your debts.
Chapter 11 - A highly complicated process, predominantly targeted towards business debtors, but in some instances, it may be suitable for individuals with substantial debts and assets.
Chapter 12 - A type of bankruptcy very similar to Chapter 13, but exclusively available to family farmers and fishermen.
Chapter 13 - A court-supervised repayment plan which is designed to repay an agreed percentage of your total debt, over a period between 3 and 5 years.
Chapter 7 and Chapter 13 are the most frequently used options; Chapter 13 is preferable in most situations, as it enables the person filing for bankruptcy to retain their property, versus Chapter 7 where they must sell it to clear their debts.
The fact that you have filed for bankruptcy will be registered on your credit report. If you filed for a Chapter 7, then it will remain on the file for ten years, and for seven years if you filed for section 13. However, although obtaining credit will initially be more challenging, it will not prevent you from ever obtaining credit again in the future.
There are probably hundreds if not thousands of reasons why any honest hard-working individual could find themselves in financial difficulty. The bankruptcy laws were designed to provide people with a second chance, and a fresh start. On the other side of the equation, the laws were also intended to ensure that all creditors are treated equally. Once the bankruptcy process is complete, your creditors are prevented from trying to collect any outstanding debts, and as a consequence, you are then able to move forward with your life.
When a debt is said to be discharged, the debtor is no longer legally obligated to repay the debt, and the creditor is prohibited from trying to enforce payment. It is essential to understand that if someone else co-signed on an agreement, they would remain liable for the debt. Finally, if the debt was a secured loan, where you agreed to use property as collateral for the loan, then your creditor may still be entitled to repossess the property, should you not repay the loan. In situations like this, you are advised to speak to our friendly customer service team who will be able to provide you with the correct advice or provide you with the details of a bankruptcy lawyer.