Chapter 13 bankruptcies are best understood as a payment plan bankruptcies. The bankruptcy is going to be one that is for a period of 3 or 5 years where you make a monthly chapter 13 plan payment to the local Chapter 13 Trustee. The amount will be determined based on a variety of factors such as; your income, arrears on secured debt like a mortgage, that value of your total assets, and other considerations. Based on those factors and formula detailed by the Bankruptcy code will determine the payment amount. It is a complicated process and is rarely successful without the help of an experienced legal professional.
When considering a chapter 13 bankruptcy filing it is often for one of three different reasons. First, the client has an income that is to large to qualify for a chapter 7 bankruptcy but still needs debt relief. The income calculation is based on the mean income of the client’s household. If the income is to high then the bankruptcy code requires a chapter 13 filing.
The second reason someone files is that they have to many assets that are not protected by the bankruptcy exemptions. Exemptions are the statutory limits that protect your assets up to a certain dollar amount. If after factoring those exemptions you have a value in your property it is often prudent to enter into a chapter 13 payment plan. The alternative in a chapter 7 is to surrender those assets to be sold and the money dispersed. The chapter 13 allows you to pay the value, maintain the property, and get bankruptcy relief otherwise.
Finally, the most common reason someone files for Chapter 13 bankruptcy is to get back on track with their mortgage or car payment. This is a method of curing late payments on secured debt. The bankruptcy allows you to start making you normal mortgage or car payment again, while paying back the missed payments through the bankruptcy. The Chapter 13 Bankruptcy is much more complicated and last longer than a Chapter 7.
Chapter 13 Bankruptcy FAQ’s
How Does Chapter 13 Bankruptcy Work?
Chapter 13 differs from Chapter 7 in that it is a monthly repayment plan overseen by the Chapter 13 trustee and approved by the Bankruptcy Court. The repayment plan makes a Chapter 13 Bankruptcy more complicated and last longer than a Chapter 7. The Chapter 13 repayment period and payment amount is set depending on your income, assets, and debts. The repayment plan period will be between 3 to 5 years long. If you make all the payments to the trustee during the repayment period, you will receive a discharge on any remaining debts that are left unpaid. A Chapter 13 Bankruptcy is also voluntary so if your situation improves you have the option to withdraw from your case.
Who Qualifies for Chapter 13 Bankruptcy?
Any individual can file a Chapter 13 Bankruptcy. The question is typically whether you are required to enter into a Chapter 13 repayment plan base on your income, whether it will help you manage your debts in a cost effective manner, or if you need to stop a foreclosure on your home or a repossession of a vehicle.
What is the Process for Chapter 13 Bankruptcy?
A Chapter 13 is very complicated because of the Chapter 13 Plan for repayment. Chapter 13s that are filed without an attorney are rarely successful, so it is advisable to consult with an attorney if you intend to file. The process begins with gathering all your financial information requested by your Bankruptcy Attorney. With the information your bankruptcy attorney will build your bankruptcy petition and calculate your Chapter 13 Plan of repayment. Once the court documents are prepared you will review them with your bankruptcy attorney and then they will be filed. After the case starts you will have a hearing with the Chapter 13 Trustee to confirm your paperwork and start making your payments. Your bankruptcy attorney will then make any necessary changes to the Bankruptcy Plan for obtaining the Court’s confirmation, or approval. From there you continue to make the payments according to the terms of the Bankruptcy Plan. If all payments are made you then receive the Discharge at the end.
Who Should File for Chapter 13 Bankruptcy?
Most debtors who file for Chapter 13 do so for one of two reasons. First, they are behind on a mortgage or a car loan and wish to avoid a foreclosure or repossession and keep the property. When you file a Bankruptcy, you receive what is called the Automatic Stay of Bankruptcy which stops all collections, foreclosures, and repossession. This protection stays in place until your case ends or the Court orders that it is no longer necessary. Therefore, Chapter 13 is often good a legal tool to stop a foreclosure or repossession and catch up on the missed payments for those debts. Alternatively, a person might file for Chapter 13 if they wish to use it to solve their debt problems but have to many unexempt assets or make too much money to qualify for a Chapter 7.