Many people consider bankruptcy court the final stop on the path to financial ruin. It is the only option left when it seems impossible to pay off debts. There is still hope even in bankruptcy. Chapter 13 of federal bankruptcy law offers the best chance for a gentle landing.
Chapter 13 bankruptcy is also known as the Wage Earner’s Bankruptcy. It allows individuals who have sufficient income to pay all or part of their debts rather than going into liquidation. This is bankruptcy for those whose primary concern is to deal with creditors’ demands for fast payment and not a lack of money.
One of the most attractive aspects of Chapter 13 bankruptcy is the ability to keep your home after you file. This is provided to pay your mortgage and any other amount required by your Chapter 13 repayment plan.
Chapter 13 filings allow for three to five years to repay their debts, and all discretionary income can be used to help with debt repayment. This option allows applicants to pay off unsecured debts and make up for missed mortgage payments.
This option allows you to avoid foreclosure. Although retaining your home may seem like a great relief, you will still need to live in the care of a court-appointed trustee. He will collect your payments and distribute them over many years.
It is not possible to guarantee that bankruptcy filings will eliminate all your obligations. Not all obligations are dischargeable, including child support and alimony, school debts, and some taxes. Although bankruptcy can wipe out many of your other obligations, it will make it much more difficult to get money in the future.
To file Chapter 13 bankruptcy, an individual must not have more than $419275 in unsecured debt (personal loans or credit card bills) They can also only have $1,257.850 in secured obligations like mortgages or auto loans. These statistics are regularly updated to reflect changes in the consumer price index.
You can stop a foreclosure on your property by using one of Chapter 13’s provisions. When a Chapter 13 petition has been filed, any current foreclosure proceedings and payments of other obligations are stopped.
While this allows you to wait while the court reviews your proposal, it does not eliminate your debt. The bankruptcy plan should allow you to keep your home and continue making your mortgage payments.
Start by getting a free consultation from a bankruptcy attorney.
Filing costs and fees imposed on you by your bankruptcy attorney are what make Chapter 13 bankruptcy possible. Petitioners, or “debtors,” are charged by the bankruptcy court a $313 filing fee. They also need to provide:
A list of creditors with the amount owed
It is necessary to disclose the source and amount of income received by the debtor.
A listing of the debtor’s assets and an accounting of all leases and contracts entered into under the debtor’s name.
The monthly living expenses of the debtor are reduced.
Information about taxes, including a copy of the declaration of any owing taxes and the most recent federal tax returns.
Chapter 13 petitioners must declare that they have not had a bankruptcy petition denied because they refused to appear in court within the 180 days preceding the filing. Anyone filing for bankruptcy protection must also obtain credit counseling from an approved organization within 180 days.
After declaring bankruptcy, the debtor must submit a plan of repayment. To determine if the plan meets the standards of the bankruptcy code and is fair, a hearing will be held in front of a bankruptcy judge. Creditors can protest the plan. The court will make the final decision.
Although debtors may come up with a plan to make up the late payments over time through Chapter 13, all new mortgage payments must still be paid by the due date.
The debtor must also have a trustee who distributes the payments to creditors. The Chapter 13 agreement does not require the debtor to communicate with creditors directly. If all Chapter 13 conditions are met, creditors are legally obligated to cease all attempts to collect debts.
Your Chapter 13 repayment plan must be followed. The trustee can file a motion to dismiss your case if you fail to make or pay on time. You may be eligible to ask for an early release of the agreement by expediting your payments in certain situations.
You must inform the bankruptcy trustee if your financial situation worsens and request a revision to the plan. If you don’t follow the terms, your case could be dismissed, especially if you fail to make timely payments.
Chapter 13 is not permissible for corporations and limited liability companies (LLCs). Chapter 13 bankruptcy filings are not permitted for corporations and limited liability companies (LLCs).
Eligible applicants are those who can prove that they have the financial means to pay monthly rent. They must submit their income sources to the court within 14 days of filing the petition. There are many sources of income. These include pension income, Social Security payments, and unemployment compensation.
Also, you must keep up with tax filings. Evidence must be provided that you have filed federal and state tax returns within the last four years. Your case could be delayed if you are not able to provide evidence. If transcripts or copies of your returns are not available, your case might be dismissed.
The trustee will review the income and obligations records to decide if the plan can be accepted. After the repayments have been made, the Chapter 13 case is closed. This could take anywhere from three to five years.
Take Steven and Cathy as a married couple who have a $150,000 house mortgage. Steven is employed, Cathy is not, and they both apply for Chapter 13 bankruptcy protection. They also have nearly $20,000 in credit card debt and $7,000 on a car loan.
Two weeks after the petition was filed, they file a Chapter 13 repayment agreement. This shows how Steven’s salary could be used to pay his vehicle and home payments and repay some of his unsecured credit cards debt. They are divided into three types of debt: priority, secured and unsecured.
Priority claims such as the cost of bankruptcy, certain taxes, or child support must all be fully paid. If an exemption is granted, secured debts such as those secured by a house or a vehicle must be fully paid according to the bankruptcy plan.
Unsecured debts such as credit cards and charge card debt have a flexible repayment plan. Before deciding how much you owe your creditors, the court will look at your income and length of repayment. This could be anything from zero to full repayment.
Steven and Cathy will have to pay all court fees, as well as past taxes. They will be able also to catch up on vehicle and mortgage payments. They will have to pay the credit card companies a fixed amount.
After their plan has been approved, the couple will start making payments to a court-appointed trustee. This trustee will keep track of their progress and distribute funds to creditors.
Chapter 7 bankruptcy will require you to sell large amounts of assets to repay creditors. The process can be completed quickly, and all earnings and property you receive after declaring bankruptcy are exempt from distribution to creditors. The entire process is typically completed in six months.
Chapter 7 does have its downsides. Lenders that have filed for foreclosure on your property won’t be able to stop the proceedings temporarily. However, any other debts such as mortgage liens will be collected once the case is closed. The loan is still owed to your cosigners.
If you apply for Chapter 13 protection, you can keep all your possessions. This does not extend the time you have to repay your creditors after the bankruptcy court has made its ruling. You can file a Chapter 13 bankruptcy after a Chapter 7 bankruptcy is finalized to reduce any debts remaining from the Chapter 7 discharge.
Chapter 13 protects loan cosigners from collection attempts if the bankruptcy settlement requires that you repay the entire amount. Chapter 13 allows for a two-year wait period if you have to file Chapter 7. Chapter 7 has an eight-year waiting window.
Each chapter of Chapter 13 bankruptcy comes with its set pitfalls. Chapter 13 bankruptcy cases can have higher legal costs than Chapter 7 cases. Your repayment obligation may continue for many years. The majority of debt obligations can be discharged by Chapter 7.
After a court approves a repayment plan, the debtor is responsible for making the budget work. The court may bring the case back for further consideration if the debtor fails to make the agreed-upon repayments. This could include the sale of the property to meet obligations. A trustee can also request that the lawsuit be dismissed.
Although bankruptcy may offer debtors a reprieve from creditors, it can also come with a credit reporting penalty. Under the federal Fair Credit Reporting Act, a Chapter 13 bankruptcy will be recorded on your credit report for seven-year. This situation can make it difficult for debtors to obtain loans in the future.
Chapter 13 bankruptcy can benefit people with large debts and who fear losing their homes to bankruptcy. A bankruptcy attorney should be consulted by anyone considering this course.
Although bankruptcy filings can be the best option for debt relief in some cases, they are not always the best. Before you decide whether to file bankruptcy, make sure to resolve your debts.
Consult with an attorney to determine if bankruptcy is a feasible option. Each option has its advantages and disadvantages. Only an attorney can help you determine the best course.
Contact a non-profit credit counselor to get help. Free counseling may be offered by churches, charities, or government agencies. This is a free service that will examine your finances and offer you options for reducing debt.
Next, contact a non-profit credit counseling agency that can help develop a strategy for managing your debt. The strategy could include a list of debts that you must pay first and how your income will repay them. You can meet with debt managers to establish goals and create a strategy or use online resources.
A repayment pecking system, which emphasizes repaying high-interest loans first and making minimum payments on all other obligations, could be part of the strategy. It can take up to five years for debt management programs to be completed.
Some companies will work with your creditors to establish a debt consolidation program. A debt consolidator can help you make one monthly payment to settle your credit card debts.
A non-profit debt settlement company negotiates to lower your debt in exchange for a reasonable repayment plan. This is the final step in resolving your debt problems and avoiding bankruptcy.
Although it is not a foolproof process, creditors might be willing to accept lower payments if there is a chance they can recoup some of their debt.