If you are seeking an option to cope with your overwhelming debts, you can use Chapter 13 Bankruptcy. It is different from Chapter 7 Bankruptcy in a way that Chapter 7 is designed to aid people with little income and high debt while Chapter 13 is ideal for consumers with regular income and overwhelming debt. The goal is just the same: to deal with creditors who demand immediate payment.
Understanding Chapter 13 Bankruptcy
Chapter 13 Bankruptcy is sometimes called Wage Earner’s Bankruptcy. It allows people with enough income to pay back all or some of their debts but on a more reasonable payment method than you may currently have with them. One of its striking features is the ability to keep your home providing you pay the mortgage under a settlement plan.
Under this form of bankruptcy, debtors are given 3-5 years to resolve their debts while applying their disposable income to debt reduction. The most common debts settled in the Chapter 13 bankruptcy include personal loans, medical expenses, credit card debt, child support, income tax, and alimony payments. Although you may be able to lower the debt owned to some creditors, other such as child support, alimony, and any federal lenders (tax or other loans) are not consolidated prior to repayment.
- Creditors should only have a direct contact with the trustee who in turn will communicate with your or your bankruptcy attorney. This means no more dealing with aggressive collection calls.
- Keep your property and prolong the length of time you have to repay the debts you owe
- Secured debts like car and home loans as well as unsecured debts like credit cards
- Includes special provisions that protect co-signers
- Helps prevent repossession and foreclosure
- Lawyer fees will be paid through the repayment plan
- The process may take up to 5 years
- Can still damage your credit for up to seven years
- All “disposable” income is use to contribute to payments
Can You Qualify for Chapter 13 Bankruptcy?
As long as you have a regular income, you can file Chapter 13 Bankruptcy. Your income level helps identify the timeline of your repayment plan.
You will need to prove to the court that you can afford to make your payments under a repayment plan and meet your monthly household obligations. Income may come from a wide array of sources including unemployment compensation, Social Security payments, or others. The court does not generally approve the proposed repayment plan if your income is too low or irregular.
Also, the debt limits play an integral role to determine if you can qualify for the bankruptcy. If your total debt burden is exceptionally high, you will not qualify; however, if this is the case, then you may have options under an individual Chapter 11 Bankruptcy.
Keep in mind that only individuals with regular income can be eligible to obtain Chapter 13 Bankruptcy. Sole proprietorship and businesses are unqualified, even commodity brokers and stockbrokers are excluded (even if it is a personal debt).
Filing Chapter 13 Bankruptcy
More complex filing and completing a Chapter 13 Bankruptcy than Chapter 7 Bankruptcy makes a recommendation for seeking the help of a bankruptcy attorney wise.
You will have to complete a series of official documents and submit a proposal to repay your debts. The court will appoint a bankruptcy trustee to contact your creditors and assess your plan before affirming a final repayment plan.
Also, you must present a certificate testifying you received the mandatory credit counseling course from a U.S. Ttrustee approved agency and a bankruptcy filing fee. Consumers will take a second debtor education course after filing for Chapter 13.
Debts You Can Repay in a Chapter 13 Bankruptcy
- Priority Debts: The Chapter 13 replayment plan will cover certain debts in full. Priority debts include spousal and child support, bankruptcy filing costs (including lawyer fees and filing fees), and unpaid tax expenses from the past 3 years.
- Secured Debts: You can likely reduce what you owe on secured debts to the current asset value. This is called cramdown. But, you cannot cramdown your home’s mortgage. You will be required to pay off the loan if you want to keep a car or house or other asset-backed by a collateralized loan.
- Unsecured Debts: Your plan should apply your disposable income towards unsecured debts, like medical costs and credit card balances. In some cases, you do not necessarily have to pay off these debts or even pay them all completely. Demonstrate that you are putting the remaining income to their repayment.
- Value of Nonexempt Property: Under Chapter 13 Bankruptcy, you are not allowed to keep all of your property if you can afford to do so. What you will be required is to pay the property’s value that you cannot protect with an exemption using your plan.
The Chapter 13 Bankruptcy Trustee
As have mentioned above, the court will appoint an impartial trustee once you file a petition. He or she will administer your case. Part of the trustee’s role is to ensure your proposed repayment plan strictly adheres to the law. The trustee also monitors various duties (e.g., annual financial statements) and act as a disbursing agent.