Chapter 13 bankruptcy lets you keep your home, car, and other property while settling some of your debts based on a payment plan that you can afford. Sometimes it is called a “reorganization bankruptcy”. A Chapter 13 filing usually does not involve the liquidation (or sale) of your assets and property. Instead, you enter a repayment plan with your creditors. Once you complete your repayment plan, most debts that you didn’t pay are wiped out.
Work with a skilled Chapter 13 bankruptcy attorney who can help you through the legal process. Filing for bankruptcy can become complicated, especially once you start listing and organizing your debts and assets. You don’t have to deal with this situation alone. Instead, work with a lawyer who has experience with cases like yours. Call Farmer & Wright, PLLC today for more information about how we can help you.
Am I Eligible for Chapter 13?
You must meet specific financial criteria to undergo Chapter 13 bankruptcy. If your debts are too high, or your income is too low or variable, you may be ineligible. As of April 1, 2016, you cannot have more than:
- $1,184,200 in secured debt (such as mortgages and secured car loans), and
- $394,725 in unsecured debt (such as credit card debt and medical bills).
You also must be up-to-date on your income tax filings. Additionally, you must be an individual and not a business. However, if some of your debt is business-related, but in your name, then you may be able to address it through the bankruptcy.
It can be difficult to determine your eligibility for Chapter 13 on your own. An experienced bankruptcy lawyer can help you evaluate your financial situation and determine which debts should (or should not) be included when assessing your eligibility.
Is Chapter 13 Right for Me?
Admittedly, Chapter 13 bankruptcy is not for everyone. You must be financially capable of paying off a portion of your debts under your repayment plan. As long as you have some amount of disposable income (the amount you have after making reasonable payments for housing, food, and other necessities) that you could commit to paying into your plan you could be eligible for a Chapter 13.
There is no reason to be ashamed of a Chapter 13 bankruptcy. Many hard-working, honest people struggle to pay their bills. You may have assumed that after a job loss, medical emergency, or divorce, you would quickly rebound (and pay off your increased credit card bills and personal loans). However, financial recovery is frequently a slow and difficult process. We can help you rebuild. Chapter 13 allows you to repay a portion of what you owe based on what you can AFFORD, not based on what you OWE.
Chapter 13 May Be Right For You If the Following Apply to YOu
There are several different types of bankruptcy, with Chapter 7 being the most common other form of bankruptcy. However, Chapter 13 may be right for you if the following are true:
Your monthly income currently and for the last six months has been more than the median income for a household of your size in your area.
If your income is greater than the median income, you likely don’t qualify for Chapter 7, and a Chapter 13 bankruptcy may be right for you.
You have disposable income after necessary expenses.
When evaluating your income, the court will look at your income and subtract what it considers “necessary” expenses. That may include things like rent and utilities. It may not include things like private school education for your children or a vacation. If you have disposable income after necessary expenses, a Chapter 13 bankruptcy payment plan may work for you.
You need an extended automatic stay.
When you file bankruptcy, you will get an automatic stay that will pause collection processes of creditors. This includes lawsuits, calls, wage garnishments, and more. A Chapter 7 bankruptcy will only get you a brief automatic stay because the bankruptcy will be concluded quickly. However, Chapter 13 bankruptcy will allow you to utilize a full automatic stay to get your finances in order.
You need to organize payments for nondischargeable debts into a payment plan.
If you have a lot of nondischargeable debts, such as student loans, then a Chapter 13 bankruptcy may be best for you. You can likely include those in your debt payment plan and renegotiate your payments with those creditors. If you file Chapter 7, those nondischargeable debts will continue collection processes immediately after your bankruptcy concludes.
You have codebtors.
If you have loans that include codebtors or cosignors, then it may be best to file Chapter 13 bankruptcy so that you can continue paying those debts. Otherwise, your codebtor will be responsible for that debt.
It can be difficult to know if Chapter 13 bankruptcy is right for you. It’s best to consult with a knowledgeable attorney who can evaluate your specific situation and help you make the best choice possible.
The Chapter 13 Bankruptcy Process
Before you file under Chapter 13, you must take a short credit counseling course. (This can even be done online.) Then, you must file a petition for bankruptcy with a federal bankruptcy court. Federal courts have specific procedures that must be met, and you will likely have deadlines to meet as well. It’s important to work with a Chapter 13 bankruptcy lawyer who is familiar with this process and can get you started on the right foot.
You and your bankruptcy lawyer will organize and analyze your debts and disposable income. It’s important to go over with your bankruptcy attorney all of your debts and assets.Once you have a complete list of your creditors, debts, sources of income, and other financial information, you will file a packet of forms (your petition) with the federal bankruptcy court. The most important part of your petition is your proposed repayment plan. This plan will explain:
- How much you have the ability to pay, and
- How much of your debts would be paid off during the term of your plan.
A bankruptcy trustee will review your proposed repayment plan, your income statements, and in most cases so long as what you are proposing is fair and reasonable it may be approved. If the court approves your plan, you will repay your debts over time. (A Chapter 13 bankruptcy typically last three to five years.)
The Meeting of Creditors
You must also attend a 341 meeting of creditors that gives your creditors an opportunity to dispute any of your debts. While your attorney can attend most bankruptcy hearings on your behalf, you will have to attend the Chapter 13 bankruptcy meeting of creditors. There are very limited circumstances in which you may attend via telephone. At the meeting of creditors, you will review your bankruptcy information and confirm your debts. It’s unlikely that a creditor will actually appear unless they suspect fraud was involved in your debts.
Once the court approves your proposed payment plan, it will order you to make payments on a monthly basis for a three to five year period. If you miss any payments in that time, you may have to address the bankruptcy court again. However, you may renegotiate your payments or transfer your case to a Chapter 7 bankruptcy if your financial situation changes. If you have trouble making payments on your payment plan, then you should speak with your Chapter 13 bankruptcy attorney right away.
How Much of My Debt Will I Repay?
It is based solely on what you have the ability to pay. The only debts that you must pay in full include priority debts, such as:
- Past-due alimony
- Child support
However, you typically will pay less than the full amount of other, unsecured debts (such as credit cards, medical bills, personal loans, and utility bills). Under Chapter 13, these creditors will receive a percentage of their bill, based on your remaining disposable income (after your priority and secured debts are paid). After that, your remaining unsecured debts may be discharged at the end of your payment plan.
Work With a Chapter 13 Bankruptcy Lawyer
If you have the ability and discipline needed to complete a Chapter 13 bankruptcy, it can be the first step towards your financial freedom. At Farmer & Wright, PLLC, we guide our clients through the emotionally difficult and technically challenging process of filing for bankruptcy. We will help you draft a repayment plan that meets your personal needs and long-term goals. Contact us today for a free and confidential consultation. Call us to start your case today.