Chapter 13 Bankruptcy
How We
Can Help
Most people know that bankruptcy can be a viable solution if you can’t keep up with your financial obligations. And most people know that you can file for different types of bankruptcy available to get out of debt. But most people don’t know a lot about the differences between the different bankruptcy chapters and why it might be better for you to file one or the other of them.
Chapter 13 is a logical option for people in certain situations. It isn’t always necessary to file this kind of case if you’re looking for a way to consolidate your debts while protecting your assets as it may be possible to protect everything in Chapter 7. So read on to learn more about filing for Chapter 13 bankruptcy and about whether it would be better for you than Chapter 7.
What Is Chapter 13 Bankruptcy?
The heart of a Chapter 13 bankruptcy is a repayment plan. This doesn’t mean that you have to pay all of your debts when you file for Chapter 13 bankruptcy. You do have to propose a plan with monthly payments based on your income. But these payments can go toward your first toward taxes or secured debt, not just your different debts and credit lines. And in most Chapter 13 cases, you can discharge what you haven’t paid off.
But why file Chapter 13 and sign up for a payment plan that can last three or five years, depending on your income, if you can just discharge it all in Chapter 7.
The answers are that Chapter 13 lets you have time to pay debts like taxes that wouldn’t be discharged in Chapter 7. Another main advantage is for people who have non-exempt equity in their assets, for example, more than $50,000.00 equity in their home. They can file Chapter 13 and so long as their creditors are treated as well in Chapter 13 as they would have been in a hypothetical Chapter 7, they can keep their home.
Your bankruptcy attorney can help you by determining if there is any reason why you should file Chapter 13 instead of Chapter 7. Other circumstances where Chapter 13 might be better are stopping foreclosure on your home or protecting co-signers.
What Does a Chapter 13 Repayment Plan Typically Look Like?
There are a series of rules that determine how your Chapter 13 repayment plan must be structured. Your bankruptcy lawyer will help you determine the minimum amount for your monthly or bimonthly plan payment. It has to be enough to pay the things that have to be paid, like priority taxes or secured debt that you are going to pay through the plan. It also has to be enough to pay the creditors what they would have received if you were going to file Chapter 7 instead of Chapter 13.
There is also a commission that gets paid to the Chapter 13 trustee, who handles the case for the bankruptcy court, and usually the legal fees for the length of the plan, above what you pay to start the case, will be paid through the plan.
All of this determines the minimum amount that you have to pay. But now we have to go through a process of assessing your different sources of income and deducting your expenses to figure out how Chapter plan payments should be. If this is more than the minimum payment, you have to pay the larger amount.
You can take a look at Form 122C-1 and Form 122C-2 to get a better idea of the kind and amount of expenses that are typically allowed. However, larger expenses can often be acceptable, for example if your house payment is more that what the guidelines allow. Your bankruptcy attorney will analyze your budget and determine how much to propose in plan payments. The median income for your state and the size of your household will determine if your plan has to last a minimum of three or five years.
These repayment plans don’t necessarily result in paying off everything you owe. There are different levels of priority for your debt:
- The priority debts must be repaid in full before the end of your plan. These debts can include certain back taxes, child support or spousal support. An experienced bankruptcy attorney can help you determine how much, if any, of old taxes you owe are priority and have to be paid back in your plan.
- Some of your debts will fall under the secured debt category. These debts include a mortgage, car loan, home equity loan and more such as a loan for a boat or RV. Usually your plan would just provide that you will stay current on your payments for the duration of your plan. Typically you do not pay these debts off in full under your plan. On the other hand, usually secured vehicle or RV loans with a past due balance have to be paid through the plan. So you wouldn’t make the regular payments any longer but instead would have a higher plan payment that includes that loan. For home loans with past due balance, just the amount in arrears has to be paid through the plan.
- There’s a third category for unsecured debts such as credit cards, medical bills, etc. If you have non-exempt equity in your assets or if your income is higher than your expenses, not including the monthly payments on your unsecured debt, you’ll be required to propose a plan that includes repaying unsecured debts in part or in full. It is fairly unusual to have to propose a plan that requires payment in full. Most Chapter 13 filers qualify for a plan that pays little or nothing on their unsecured debt.
- Student loans may have special treatment. While you are usually not allowed to keep paying on unsecured debt like a credit card with your credit union that you want to keep, you are allowed to keep making payments on income based repayment plans on your student loans.
Your bankruptcy lawyer will create a plan proposal that has a good chance of being approved. Once you file it, the Chapter 13 trustee will review it and discuss it with you and your attorney at the court hearing known as the Meeting of Creditors. Then, if he recommends your plan, the bankruptcy court will review and approve it.
Your creditors have an opportunity to review and object to the plan but it is very rare that they do so. They do not have to approve the plan; If they fail to respond, it can be approved by the Court. When creditors do object, the plan may be approved by the Court if it follows all of the rules, even if a creditor has an objection.
What Happens After Your Chapter 13 is Over?
Unless your plan provides for 100% payment to all creditors, you can not pay it off early. You must keep paying and turning over your tax refunds for the life of the plan, either 3 or 5 years.
However, when you have made all of your payments, even though your nonpriority debts could have remaining balances, they will be discharged. If there were any non-dischargeable debts, your bankruptcy attorney would know and would help you set up payment arrangements with them.
Who Is Eligible for Chapter 13 Bankruptcy?
You can file for bankruptcy under Chapter 13 if you’re an individual with a steady income. Entrepreneurs and self-employed individuals can qualify.
Effective June 21, 2022, the debt limits for Chapter 13 were increased to a combined total of $2,750,000.00. However, this provision will end in two years and the law will go back to the old rule of no more than $465,275.00 in unsecured debt and secured debts of no more than $1,395,875.00.
There are also rules about how long you have to wait if you have filed for bankruptcy before. You’ll have to wait two years after filing under Chapter 13 to file again, and you won’t be able to file if you declared bankruptcy under Chapter 7 in the past four years.
What Is the Automatic Stay Provision?
The automatic stay provision will go into effect when you file your Chapter 13 plan. It protects you from further action from creditors.
This provision protects you from further legal action to collect on what you owe so you’ll be safe from practices like wage garnishment or civil lawsuits.
The automatic stay provision also protects co-signers. Once you file your Chapter 13 bankruptcy case, they are protected as well. However, the trade-off is that to keep the protection of your co-debtors, your plan has to propose to pay the co-signed debt in full. You are allowed to do this even if your plan pays little or nothing to the other unsecured creditors. If your plan provides for you to take responsibility for repaying the co-signed debt, then that creditors will no longer be able to collect from your co-signer.
What Is a Chapter 13 Bankruptcy Trustee?
The trustee plays a critical role since they are appointed by the Court. They collect the money you pay under your plan and follow the Court’s orders on how to distribute these funds to your creditors.
This trustee will review your plan and make sure you meet the requirements for filing under Chapter 13 and that your plan follows the rules for how much your plan payments should be. . The Chapter 13 trustee will ask you questions at the meeting with your creditors and will tell the Court if your plan should be approved.
You’ll make a single monthly payment to the trustee for the duration of your repayment plan. Your trustee will be responsible for distributing the money to your different creditors according to the provisions of your repayment plan.
What Happens to Your Home and Assets Under Chapter 13?
Unlike a Chapter 7 bankruptcy, filing for Chapter 13 bankruptcy usually means you’ll get to keep your assets, even the ones that can’t be covered by your exemptions. The trade-off is that you have to pay your creditors in Chapter 13 as much as they would have received in a Chapter 7 case.
Even if you were behind on payments when the case was filed, the automatic stay provision discussed above prevents repossession or foreclosure. So if you can propose a plan that meets the rules and keep making your regular payments in addition to the plan payment, you’ll be able to keep your home, car, and other assets.
In some circumstances, Chapter 13 even gives you the ability to remove judgment liens from your home or pay loans based on the value of the collateral, not the amount you owe.
Chapter 13 vs. Chapter 7 Bankruptcy
Chapter 7 bankruptcy filings are more common. They account for 70% of all filings, while Chapter 13 filings represent 30%. This is because Chapter 7 is better for most people since it is over sooner and doesn’t usually involve making payments to the unsecured creditor.
So people only file Chapter 13 when there is a good reason to do so, like something that won’t work out if they were to file a Chapter 7 case instead.
This could be debts, like takes, that are not going to be discharged. If you are going to be garnished for tax debt as soon as the case is over, it will almost be like you didn’t file for bankruptcy. If the amounts are small enough that you can set up payment arrangements, then that would be better than Chapter 13.
Or it could be non-exempt assets that the Chapter 7 trustee would want to sell or payments to friends or family that the Chapter 7 trustee would try to recover.
But without a good reason to need to file Chapter 13, your bankruptcy attorney will advise you to file Chapter 7.
Though Chapter 7 is technically a liquidation plan where the Chapter 7 Trustee could sell your non-exempt assets to pay off your creditors. But this almost never happens because for most people all of the assets are exempt and so the Chapter 7 trustee never tries to sell anything. This is why most Chapter 7 cases are known as “no asset” cases.
How a Bankruptcy Attorney Can Help With Chapter 13
Getting legal advice is a smart move if you’re considering bankruptcy. A lawyer can help you review your financial situation and determine if bankruptcy or another debt relief option makes sense for you.
If you’re a good candidate for bankruptcy, a lawyer can also advise you if there is any reason why you should consider filing Chapter 13.
Legal help can also make a huge difference when filing your Chapter 13 case. You should know that close to two-thirds of all Chapter 13 plans are not complete. Getting a bankruptcy court to approve your plan is hard enough but keeping up with the monthly payments and turning over your tax refunds every year can be very challenging.
It’s best to work with a Chapter 13 bankruptcy attorney who can advise you whether it is possible to draft a plan that will meet all the existing requirements without being too much of a burden on your budget.
Conclusion
Since Chapter 13 should only be filed when there is a good reason to do so, it can be beneficial to have an experienced professional by your side to help you determine whether to file Chapter 7 or Chapter 13. And if it is clear that you need to file Chapter 13, your bankruptcy attorney can make sure that your plan meets the requirements while keeping your plan payments as low as legally possible.
A good bankruptcy lawyer will be able to answer all your questions regarding Chapter 13, including whether you need to file Chapter 13 at all. Having an experienced bankruptcy attorney on your side, especially one who works hard to keep you informed and is accessible when you need them, can make this process a lot less stressful.
What Is Chapter 13 Bankruptcy?
The heart of a Chapter 13 bankruptcy is a repayment plan. This doesn’t mean that you have to pay all of your debts when you file for Chapter 13 bankruptcy. You do have to propose a plan with monthly payments based on your income. But these payments can go toward your first toward taxes or secured debt, not just your different debts and credit lines. And in most Chapter 13 cases, you can discharge what you haven’t paid off.
But why file Chapter 13 and sign up for a payment plan that can last three or five years, depending on your income, if you can just discharge it all in Chapter 7.
The answers are that Chapter 13 lets you have time to pay debts like taxes that wouldn’t be discharged in Chapter 7. Another main advantage is for people who have non-exempt equity in their assets, for example, more than $50,000.00 equity in their home. They can file Chapter 13 and so long as their creditors are treated as well in Chapter 13 as they would have been in a hypothetical Chapter 7, they can keep their home.
Your bankruptcy attorney can help you by determining if there is any reason why you should file Chapter 13 instead of Chapter 7. Other circumstances where Chapter 13 might be better are stopping foreclosure on your home or protecting co-signers.
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01
Determine If You're Eligible
We will help you find out if Chapter 13 bankruptcy is the best option for your situation and if you are eligible.
02
Set up Your Repayment Plan
We will assist you with creating a favorable repayment plan with your creditors.
03
Stay On Track
Make sure to budget and make your payments on time to get thorough your chapter 13 and rebuild your credit quickly.