Chapter 13 restructures debt into a repayment plan lasting three to five years.
What is Chapter 13?
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Speaking to a Chapter 13 Bankruptcy Attorney.
Chapter 13 refers to the Chapter in the Bankruptcy Code, which permits individuals with regular income to pay all or some of their debts through a convenient repayment plan over several years. Consequently, Chapter 13 Bankruptcy is typically known as a “debt consolidation” Bankruptcy or a “wage earner plan,” Notwithstanding, I prefer to think of it as a consumer reorganization.
What is the Purpose of Filing Chapter 13?
Speaking to a Chapter 13 Bankruptcy Attorney is to allow you to keep all of your assets and pay off the debts you need to pay off to keep your home, car, or other valuable assets. If you are behind on your home or car, no problem. Moreover, with chapter 13, you can catch up over five years. If you are in foreclosure, but the trustee sale hasn’t happened yet, you can save your home by filing before the sale date.
Chapter 13 Bankruptcy Law is designed for consumer debtors who cannot reinstate their mortgages in one lump sum but can catch up if given enough to do so. In many cases, second mortgages or home equity lines of credit can be wiped out as both a debt you owe and a lien against your property, leaving you with only one mortgage payment to arrange on your home, thereby substantially reducing your housing costs.
How to File Chapter 13 Bankruptcy:
Chapter 13 restructures debt into a repayment plan lasting three to five years and lets you keep assets like your home. Chapter 13 bankruptcy Laws allow you to restructure overwhelming debts under the protection of a federal court, setting up a repayment period of three to five years.
Chapter 13 Bankruptcy Attorneys call these “wage earners” Bankruptcy because you must have a regular income to qualify. Nonetheless, the goal is to resolve some debts and accomplish the status of ‘current’ on secured loans with collateral, such as a home or car.
Here’s how to figure out if Chapter 13 bankruptcy is right for you and how to file.
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Do you qualify for Chapter 13 bankruptcy?
To qualify for Chapter 13 bankruptcy:
Requisitely, have a regular income.
Your unsecured debt cannot exceed $419,275, and your secured debt cannot exceed $1,257,850.
A Prerequisite is to be current on tax filings.
You cannot have filed for Chapter 13 bankruptcy in the past two years or Chapter 7 bankruptcy in the past four years.
Accordingly, you cannot have filed a bankruptcy petition (Chapter 7 or 13) in the previous 180 days that was dismissed for specific reasons, such as failing to appear in court or comply with court orders.
Conversely, even if you qualify for Chapter 13 bankruptcy, ensure you know the difference between Chapter 7 vs. Chapter 13 bankruptcy.
How do you file for Chapter 13 bankruptcy?
When considering Bankruptcy, meet with a Chater 13 Bankruptcy Attorney. Nevertheless, the initial consultations should be free. These meetings will help you understand your circumstances and decide whether Chapter 13 Bankruptcy is the ultimate route to building your finances back on track.
Ordinarily, if your car has either been bona fide recently repossessed or is about to be repossessed, that can be fixed in chapter 13 too. If the IRS or Franchise Tax Board is making your life miserable, no problem, as chapter 13 lets you pay that off over time without them garnishing your paycheck or wiping out your bank account with no notice.
In Chapter 13 bankruptcy, you and your lawyer will work to prove your eligibility for a debt reorganization to a bankruptcy trustee, who administers the proceedings. You’ll derive court approval of a plan to repay both unsecured and secured debts in part or whole. You’ll pay over three to five years and will retain your assets. In the end, the remainder of some debts may be forgiven.
Once you’ve decided to file, you’ll go through these steps:
Credit counseling: Complete pre-filing bankruptcy counseling through a nonprofit credit counseling agency. Your counselor may also help you draft a repayment plan.
Hire an attorney: Hire a qualified bankruptcy attorney. Chapter 13 is undoubtedly complex, and skipping a step or improperly filling out a form can lead to your case being thrown out or not having certain debts covered.
Fill out paperwork: Your attorney will help you fill out the various forms required to file. You’ll need to gather information on your whole financial picture, including debts, income, property, and monthly expenses.
Submit bankruptcy petition: Also known as “filing” the Bankruptcy, submitting the various forms kicks off the process. A bankruptcy trustee will be appointed. Consequently, as soon as you file, you enter an “automatic stay,” which means that most attempts to collect on your debts must cease.
Submitting payment plan: Within 14 days of filing the petition, you must submit a proposed payment plan. You must start making payments on the project within 30 days of filing the petition, even if it hasn’t been approved yet.
Meeting of creditors: Between 21 and 50 days after filing the petition, the Trustee will host a meeting where creditors can discuss any issues with you.
Confirmation hearing: No later than 45 days after the meeting of creditors, you, the Trustee, and creditors who wish to attend meet in court to confirm the payment plan.
Payment: Creditors are paid as agreed under the plan over three to five years.
Debtor education course: Before the Chapter 13 bankruptcy is complete, you must complete a “debtor education course” from a nonprofit credit counseling agency.
What is the Dreaded “Means Test”
Chapter 13 is where some debtors who have incomes above median income fail the dreaded “Means Test.” When the banks slammed through the bankruptcy reform act in 2005, debtors, in effect, were screwed pure and simple. If you dare brew too much money, you cannot file Chapter 7 but pay off some of your unsecured debts over a five-year repayment plan based upon this draconian formula that only greedy creditors and banks could come up with. How much you pay back depends on how adept you and your attorney are at presenting your means test to the Trustee. I have been doing the means test for quite a while and am competent at delivering it to the Trustee.
Is Chapter 13 bankruptcy right for you?
Consider Bankruptcy if your problem debts total more than 40% of your annual income or would take five years or more to pay off even if you took extreme measures. Chapter 13 may be your best bankruptcy route if:
You want to keep certain assets or be behind on your mortgage or car payments and want to recover them over time.
Most of your debts are student loans, child support, or other debts that either can’t be or are highly unlikely to be discharged under Chapter 7.
You have a co-signer on an account in arrears. With Chapter 7, creditors can go after your co-signer even though you’re protected. If you file Chapter 13, you can arrange to pay off the co-signed debt in your repayment plan, protecting your co-signer.
Use the free initial consultation that bankruptcy attorneys offer to learn about Bankruptcy and other debt-relief options, such as a debt management plan through a credit counseling agency.
Chapter 13 bankruptcy will stay on your credit reports for seven years from the filing date, and during this time, you’ll likely find it harder to acquire credit. Even so, your credit scores should induce recovery. Researchers at the Federal Reserve Bank of Philadelphia looked at data from 2010-12 and found that those who completed their repayment plans and received a discharge saw their scores rise from 535.2 to 610.8.
Some debts typically can’t be erased in Bankruptcy, including recent taxes, child support, and student loans. Bankruptcy still may be an option for you, though, if erasing other kinds of debt — credit cards, personal loans, medical bills — would free up enough money to pay the debts that can’t be erased.
“Bankruptcy is not a panacea for every situation, and if you’re contemplating doing it, you should have a frank conversation with an attorney,” says California bankruptcy attorney Matthew Olson. “There’s the downside of the hit on your credit report, but frequently that will be outweighed by relief of stress and wangle this problem solved and letting you move forward with your finances.”
What is the Process For Filing Chapter 13?
The process for filing the case is similar to chapter 7, except you do not receive your discharge until you complete your plan in 36 or 60 months, depending upon how your case is structured.
Alternatives to Bankruptcy and How to Weigh the Benefits?
Umpteen people choose to go into debt consolidation programs which work out occasionally but not regularly. The problem with a debt consolidation program is that the debtor still has to pay back a certain amount of debt, but there is no guarantee that all the creditors will go along with the program. Not only that, but everything would stay on their credit report for seven years after the date of the last payment made on the debt consolidation program, while someone under a Chapter 13 plan would have most delinquencies removed seven years from the date the case was filed. If someone had some money to settle the debts upfront, they could negotiate settlements with each creditor for 30-50% of the balance. That sounds phenomenal in theory, but if you are not successful with all of the creditors, then you will still have problems on your hands with the creditors that did not settle.
Nevertheless, you will have taxable income to pay on the money saved. A virtue of this is called cancellation of debt income, and the IRS will want to be paid a portion of what you saved. Moreover, debt consolidation and debt settlement have some excellent points, but the bottom line is that you can probably do better in Chapter 13 if you have competent representation.
Is it Possible To File Chapter 13 With Some Creditors But Not Others?
In Bankruptcy, the debtor has to list all their assets and debts. However, if someone is comfortable with their car loan, they may often exclude that from the chapter 13 plan and continue paying it the same as they were. Although rare, there are situations where it is possible to discriminate against one creditor.
So do not delay in regaining your financial independence. If you think it is time to file chapter 13, give me a call today for your free consultation and succeed with life.