Everything You Need to Know About Chapter 13 Bankruptcy
Hey there! If you’re reading this, you’re probably looking into filing for Chapter 13 bankruptcy. We get it – financial troubles happen to the best of us, and sometimes you just need a fresh start. Well, you came to the right place. We’re here to walk you through everything you need to know about Chapter 13 in a simple, easy-to-understand way. No fancy legal jargon here!
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy allows people with regular income to keep property, like a mortgaged house or car, that they might otherwise lose, while also providing a plan to pay back a portion of debt over time, usually 3-5 years. This type of bankruptcy gives you time to catch up on missed payments without fear of foreclosure or repossession of property.
Here’s a quick rundown of the key things to know:
- You get to keep assets like your home, car, etc. – Chapter 13 allows you to catch up on late payments over time.
- Some of your debt is paid back over 3-5 years through a court-approved repayment plan.
- The rest of your debts like credit cards, medical bills, etc. are discharged at the end of the repayment plan.
- You can file Chapter 13 if you have a regular income and your debts are under limits set by the law.
The cool thing about Chapter 13 is that it stops foreclosures, repossessions, garnishments, utility shut-offs, and debt collection harassment while you work on repaying some of what you owe through your payment plan. It basically pushes the pause button on financial chaos.
Who Qualifies to File Chapter 13?
To file for Chapter 13 bankruptcy, you need to meet a few requirements:
- You must have a regular income – this includes income from employment, social security, pensions, etc. If your income is steady and stable, you likely qualify.
- Your debts must be under debt limit thresholds – generally your secured debts like a house or car loan can’t exceed $1,184,200, and your unsecured debts like credit cards or medical bills can’t exceed $394,725. But don’t worry, most people fall well below these limits.
- You must complete a pre-filing credit counseling course within 180 days of filing.
As long as you meet these requirements, you’re likely eligible for Chapter 13 bankruptcy.
The Chapter 13 Bankruptcy Process
Filing for Chapter 13 bankruptcy involves a few key steps:
- Pre-filing credit counseling – You’ll need to complete a credit counseling course before you can file. This usually costs around $50 or less.
- File paperwork – Work with a bankruptcy lawyer to complete all required documents, including financial disclosures.
- Attend the meeting of creditors – You’ll speak with your trustee and any creditors who want to ask you questions. This usually lasts less than 10 minutes.
- Await confirmation – The court reviews your repayment plan and usually approves it within a few weeks or months.
- Make payments – You’ll send a payment each month to the trustee who distributes it to creditors per your plan.
- Discharge of debts – Once you complete all payments over 3-5 years, your remaining debts are discharged.
It may sound complicated, but a skilled bankruptcy attorney can guide you through every step – making the process as smooth and efficient as possible.
The Chapter 13 Repayment Plan
The hallmark of Chapter 13 bankruptcy is the debtor repayment plan. This lays out how much you will pay each month for 3-5 years (usually 5 years), how much goes to which creditors, etc.
Here’s how it works:
- Based on your income, expenses, and debts, you propose a repayment plan you can afford.
- General unsecured creditors, like credit card companies, typically get paid pennies on the dollar.
- Secured creditors, like mortgage lenders, get paid enough to prevent repossession of property.
- Priority creditors like domestic support get paid in full.
- You send one monthly payment to your trustee who distributes payments.
- After you complete the plan, any unpaid unsecured debt is discharged.
Your attorney will maximize the plan to protect as much property as possible while discharging the most debt. Creditors can object if they feel the plan doesn’t meet legal requirements – but this is rare.
Pros and Cons of Chapter 13 Bankruptcy
Like anything in life, Chapter 13 bankruptcy has both good and bad points. Let’s break it down:
- You get to keep assets like your home and car by catching up on payments through the plan.
- Foreclosure, repossession, garnishments, and utility shut-offs are stopped.
- Most future wages are protected – creditors can’t garnish your paycheck.
- Debt collection harassment has to stop once you file.
- Attorney fees can be paid over time through the plan.
- Credit score often improves during and after bankruptcy.
- Any unpaid unsecured debt is discharged when you complete the plan.
- Bankruptcy stays on your credit report for 7-10 years.
- You must stick to a tight budget during the repayment plan.
- You can’t take on new debt without permission from the court.
- You may have to give up luxury property like boats, ATVs, etc.
- Any budget surplus during the plan may go to creditors.
- You still have to keep paying mortgages, car loans, taxes, etc.
As you can see, there are good and bad aspects of Chapter 13 bankruptcy. An attorney can help maximize the pros and minimize the cons in your unique situation.
Alternatives to Chapter 13 Bankruptcy
If you’re hesitant about filing bankruptcy, here are a few alternatives that may work:
- Debt management plan – Work with a credit counseling agency to consolidate debt and lower interest rates.
- Debt settlement – Stop paying creditors and lump sum settle debts for less than owed.
- Debt consolidation loan – Take out one big loan to pay off many debts.
- Sell assets – Downsize house, sell car, liquidate luxury items to pay off debts.
- Borrow from 401(k) – Take a loan from your retirement account to repay debts.
However, these options have challenges too. Debt management plans and settlement often fail. Debt consolidation simply moves debt around. 401(k) loans put retirement at risk. Bankruptcy may be your best bet for a fresh start.
Finding the Right Bankruptcy Attorney
If you decide to file Chapter 13 bankruptcy, it’s absolutely vital that you work with an experienced attorney. Bankruptcy law is extremely complex with many traps for the unwary. A skilled lawyer knows how to maximize your case for the best outcome.
Here are some tips for finding the best bankruptcy attorney:
- Search the National Association of Consumer Bankruptcy Attorneys directory for pre-screened lawyers.
- Ask people you trust if they know a good bankruptcy lawyer.
- Interview several attorneys and ask lots of questions before deciding.
- Look for an attorney who specializes in Chapter 13 bankruptcy.
- Find someone experienced – 5+ years handling these cases.
- Make sure they take time to understand your unique situation.
- Ask what their fees are and how you can pay over time.
A caring, strategic bankruptcy lawyer can make a huge difference in the outcome of your case. So take time to find the right one. It will pay off tremendously in the long run.
Get Your Fresh Start Today
We hope this overview gives you a great starting point for learning about Chapter 13 bankruptcy. While it may seem scary or overwhelming at first, just remember – it exists to give regular hardworking people like you a chance at a fresh financial start. Don’t struggle under the weight of debt for years. Get knowledgeable about Chapter 13 and consult an attorney to discuss your options. You can get through this!