Chapter 13 bankruptcy is another common type of bankruptcy for individuals. Under Chapter 13, you can keep possession of all of your assets by committing to a settlement plan to repay creditors.
Chapter 13 bankruptcy is ideal for those with a steady income; it’s also called Wage Earner’s bankruptcy. Chapter 13 is usually a better alternative to liquidation of assets under Chapter 7 bankruptcy. Under Chapter 13, you can avoid foreclosure on your home and repossession of cars and other assets, so long as you keep up with repayments.
Chapter 13 bankruptcy puts petitioners on a payment plan that lowers their monthly costs while helping them pay off debts. Typically, these payment plans are structured around how much you can afford to pay creditors monthly. This amount is based on “means testing” standards.
To declare Chapter 13 bankruptcy, you must meet some requirements. Your secured and unsecured debts must be under a certain threshold, and you must undergo credit counseling 180 days before filing a petition. After that, you must submit a reorganization plan that accounts for all of your unpaid debts, which a judge will approve or deny based on bankruptcy code and fairness. The plan clearly details when creditors will be repaid and ensures that those creditors will recoup at least as much as they would through a chapter 7 liquidation.
The debtor then works with a bankruptcy trustee who oversees and distributes payments to creditors. Under Chapter 13, all payments must be made on time – late payments are not permitted. Typically, debtors have 5 years to repay debts under Chapter 13.
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The benefit of Chapter 13 bankruptcy is that you avoid losing properties and assets, and typically it is easier to rebuild credit after Chapter 13 bankruptcy compared to Chapter 7.
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Under Chapter 13 bankruptcy, it is required to pay back all priority debts, like state and federal taxes or child support payments. You also must pay any back debt on property that you want to keep, such as a house or car. All mortgage or car payments must be up to date by the end of your Chapter 13 payment plan.
Unsecured debts, however, may not need to be fully repaid under Chapter 13 bankruptcy. For unsecured debts, you must pay a minimum amount equal to whatever creditors would have received under Chapter 7 liquidation. This amount varies depending on your debt and exemptions.
The other rule for unsecured debts is that you must dedicate all of your disposable income to repayment. Bankruptcy laws set rules and formulas to determine what amount of your income is considered disposable, all of which must be put towards paying down debts. If your disposable income is more than the minimum under Chapter 7, you’ll have to pay more towards your debts.
Sometimes you can accelerate your Chapter 13 payments if you have the means to do so.
Chapter 13 bankruptcy does not eliminate all debt, but rather puts you on a payment plan to reorganize your debt and pay it off in 3-5 years. Some debt is not included under Chapter 13, however, including domestic support obligations like child support or alimony, criminal penalties or fines owed to the government, certain tax debts, student loans in most cases, and debts arising from malicious acts, such as those arising from drunk driving.
If you are struggling with your debt but still receiving an income, Chapter 13 bankruptcy may be the solution for your financial situation. Contact Cibik & Cataldo, bankruptcy attorneys for a free consultation to discuss your options. We provide all the information you need to make an informed decision, with no pressure to take action until you’re ready.
Chapter 13 bankruptcy is typically for those who have a steady income, but find themselves overwhelmed by their debt. Anyone who can demonstrate that they have the ability to pay down debts is eligible to file Chapter 13 bankruptcy. To qualify, you must provide proof of income, tax return statements, and a thorough listing of your debts.
Chapter 13 bankruptcy can often benefit the following people: