Chapter 13 filings are used to stop foreclosures
When consumers get overwhelmed with debt, they may find that bankruptcy is the best course of action to get back on their feet.
But choosing which type of bankruptcy to file depends greatly on how much the debtor has in the bank and what assets they have at their disposal - and a skilled attorney may be the best asset in charting a course through the storm.
Most debtors - especially those with low incomes and little to no assets - file for bankruptcy under Chapter 7, a relatively simple process that can completely erase certain types of debt.
But debtors with deeper pockets and a number of assets in their portfolios may instead consider filing for Chapter 13 protection, which could provide them with a route to pay off their debts in three to five years while potentially saving their homes from foreclosure.
The team at Consumer Attorneys is here to help consumers if they are staring down the barrel of insurmountable debt and determine if Chapter 13 is their best option to get back into financial solvency.
What is Chapter 13 Bankruptcy
A Chapter 13 bankruptcy, also know as a wage earners bankruptcy, is a type of filing that allows you to make scheduled payments to your creditors over a 3 to 5 year period. These days, most Chapter 13 filings are used to stop foreclosures on a home or prevent a collect of a personal property damages suit. Instead of a liquidation of assets, like a Chapter 7 bankruptcy, the Chapter 13 is more of a restructuring of assets to make good on a debtors financial obligations.
A debtor is allowed to keep assets in a Chapter 13 and repay those debts with an interest free plan that has a schedule of repayment to the creditors usually on a bi-weekly or month basis. A Chapter 13 can't be objected to by any creditor once the court approves it. It can't be challenged through adversary or any counter suits like a Chapter 7. The real factor of qualification for a Chapter 13 bankruptcy is if the debtor has enough income, after expenses, to realistically repay their debt according to the terms of the schedule appointed by the court. There is also a hardship the debtor can also file after a Chapter 13 schedule has been put into affect that relate to circumstances which are out of the control of the debtor that are delaying payments or preventing them.
If you're reading this and thinking that a Chapter 13 bankruptcy sounds like something you would qualify for, it's time for a free chapter 13 consultation to go over all the facts of your case with a qualified bankruptcy professional. Keep in mind, a lot of bankruptcies can be avoided through good advice from your council and any ethical bankruptcy attorney will surely advise against filing a bankruptcy if that's at all possible.
How Chapter 13 Works
Chapter 13 bankruptcies are specifically for debtors that continue to earn a decent monthly wage, yet are still encumbered by debts that are making it hard to maintain financial stability. Filing Chapter 13 bankruptcy will stop foreclosure on a debtors home and prevent collects of most personal property damage cases. In most cases, it's assumed that creditors are charging too much interest, and the debtor needs a new plan that allows them to repay the debt without interest charges. It's assumed, that a debtor with a good income can successfully repay these debts on a fixed schedule, if the interest from the creditor is removed.
To qualify for a Chapter 13 bankruptcy, the debtor must not only have a good income, but have disposable income above and beyond their monthly expenses. With a Chapter 13, a debtor is basically restructuring their debt to make a repayment possible. The Bankruptcy court will decide the terms of a Chapter 13 repayment plan and the debtor must adhere to the schedule the bankruptcy court specifies. To qualify for a Chapter 13 Bnkruptcy, a debtor may not have more than $1,081,400 in secured debt and $ 360,475 in unsecured debt. These amounts do change based on the consumer price index.
The types of debt that can be restructured vary. Homes and personal assets for the most part can be restructured and protected by a Chapter 13 bankruptcy, however student loans, IRS within the last 3 years and child support are typically not granted a stay. For all the reasons list above, a Chapter 13 is typically referred to as a wage earner bankruptcy or a payment plan bankruptcy. A Chapter 13 will remain on a debtors credit report for 7 years, which differs from the Chapter 7 which stays on a debtors credit report for 10 years.
Filing for Chapter 13: The Process
Filing a Chapter 13 bankruptcy has many advantages and is much different that a Chapter 7 bankruptcy. If you're thinking of filing a Chapter 13 bankruptcy, you'll need to be earning a regular income, so you can make the required payments to your creditors. In most cases filing a Chapter 13 can stop a foreclosure and it usually a great choice for debtors with mortgage problems. By filing a Chapter 13, a debtor may also have a chance to save investment properties that would surely be lost in a Chapter 7.
Steps to filing Chapter 13:
- File for your Chapter 13 bankruptcy. Within days, the court appoints a trustee to your case;
- File your Chapter 13 plan, after which the court would send you and your creditors a Notice of Chapter 13 Case, containing information about a Chapter 13 bankruptcy, a summary of your Chapter 13 plan, the date of the meeting of creditors and the confirmation hearing, and the deadline for when creditors must file their claims;
- If desired, creditors supply objections to your repayment plan;
- Provide your last two years’ tax returns to your trustee;
- Begin making payments under your repayment plan;
- Attend the meeting of creditors where your trustee and creditors can ask you about the information in your papers. Typically you will have to make some adjustments to your plan to accommodate the trustee or creditors by filing an “amended plan”;
- Attend the confirmation hearing. The court will address objections, and approve your plan;
- Creditors file their Proof of Claim, specifying how much they are owed;
- Next, you or your trustee would file written objections to creditor’s claims, if any;
- Twice a year, your trustee will send you periodic statements showing who has filed claims and for how much, how much money has been paid to each creditor, and the balances left to pay. In addition, you can register with “National Data Center” and see your case in real time. This is a free service and it tracks all received payments and where your money is going;
- Every year, you will give your trustee annual income and expense statements;
- File a Certificate showing that you have completed a course in personal finance management;
- After all of these steps and the completion of your 3 to 5 year plan, you receive your discharge.
The most important decision you can make if considering filing a Chapter 13 bankruptcy is retaining the council of a qualified bankruptcy lawyer. They will help you avoid many of the common mistake individuals and business owners make when declaring a bankruptcy. When it comes down to it, whether you are an individual or a business owner filing for chapter 13, it's nothing more than a business decision. You wouldn't do a multi-million dollar merger without the aid of an attorney, and filing for Chapter 13 bankruptcy is no different.
Once retain your bankruptcy attorney, you'll need to get an idea of how you can realistically make payments on you debt. A good start would be creating a detailed budget including all of your monthly expenses, income, assets and financial investments. Your lawyer is going to ask for these items anyone, so to save time and money, you might as well start working on these items before your first meeting. In your first meeting, you'll go over all the aspects of Chapter 13 qualification and both you and your lawyer will have a good idea if a Chapter 13 filing is your best option.
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Frequently Asked Questions
What debts are included in Chapter 13 Bankruptcy?
What about my car? Can I protect it in bankruptcy?
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