Chapter 13 Bankruptcy is right for you if you are experiencing a temporary setback causing you to be unable to make your payments. This option provides time, allowing you to get back on schedule with your finances. You will make monthly payments though they will be reduced, interest-free and your life will be void of collection agency harassment. Chapter 13 protects your property, prevents foreclosures and repossessions and prohibits wage garnishments.
Chapter 13 is often referred to as the “wage-earner’s plan.” When filing a chapter 13 bankruptcy you need to create and submit a repayment plan that will span 3-5 years, with installments based on your income. If your monthly income is less than your state’s median, 3 years is the typical repayment plan length. If higher, your repayment plan will span 5 years.
Essentially, Chapter 13 acts like a debt consolidation loan by consolidating all of your debt and allowing you to make one payment. The added benefits include:
- After your repayment period ends, any unpaid debt is eliminated, tax free
- Creditors must comply
- No routine fees to pay a consolidation company
- Protects co-signers
- No credit collection action can be taken against you during or after the repayment period
Qualifications & Eligibility
First, you will need to be able to make regular installments on your debt which in most cases mean you need to have an income. Additionally, the amount of your debt plays a role in your eligibility. Your unsecured debt must be less than $360,475 and your secured debt must be less than $1,081,400. These numbers are adjusted periodically to align with the consumer price index.
Additional eligibility requirements preventing you from filing, which relate to previous debt actions within the previous 180 days, include:
- Prior bankruptcy petition was dismissed due to your inability to comply with orders or appear before the court
- You voluntarily dismissed your petition after creditors sought relief from the bankruptcy court to recover property upon which they hold liens
- You failed to complete credit counseling
Costs
The court charges minimal fees for filing for bankruptcy. The first fee is a $235 case filing fee. Then there will be a $46 administrative fee. However, because the court understands you are resorting to bankruptcy due to a difficult financial situation, there can be some flexibility with payment, with permission from the court.
Filing Process
To initiate the bankruptcy process you must file a petition. Along with this petition you must file the following:
- Schedules of assets and liabilities
- Schedule of current income and expenditures
- Schedule of executor contracts and unexpired leases
- Statement of financial affairs
- Certificate of credit counseling
- Copy of any debt repayment plan created during counseling
- Evidence of payment from employers received 60 days before filing
- Statement of monthly net income and any anticipated increase in income or expenses
- Record of any interest in federal or state qualified education or tuition accounts
- Copy of the most recent tax return or transcript
Upon completion of filing your petition, any collection actions by creditors must be stopped. This is known as the “automatic stay.” The court will notify all the creditors you named in your petition who then need to stop attempting to collect on your debt through lawsuits, wage garnishments, telephone calls, etc.
Repayment Plan
Additionally you will have to provide a repayment plan to the court when you file, or within 14 days after you submit your petition. The plan must include fixed payment amounts you will provide the trustee assigned to your case and the schedule on which you will be making these payments. Your trustee will distribute the funds according to the plan you lay out, which may mean your creditors do not receive full payment.
Regardless of the approval of your repayment plan during your confirmation hearing, you must start making payments according to your proposed plan 30 days after you file your petition.
Creditors Meeting
A creditors meeting will take place 21-50 days after you file a Chapter 13. You are required to be present at the meeting and will be placed under oath. Additional attendees include the trustee, your creditors and your bankruptcy lawyer, if you have one. The trustee and creditors will ask you questions regarding your debt, which you must answer to the best of your abilities. If you have a bankruptcy lawyer, he or she will prepare you for the types of questions that will be asked, giving you time to prepare your answers.
Case Closed
Following the meeting of creditors, you will need to attend a confirmation hearing where the judge will approve or deny your repayment plan. This must be held within 45 days after the creditors meeting.
Bankruptcy is a viable debt solution for those looking to get their life back and their financial situation under control. Talk to a Bankruptcy Attorney to see if you are eligible for bankruptcy and discuss how it will improve your quality of life.
