Bankruptcy Chapter 13 Explained
If you are considering declaring bankruptcy, then it helps to understand the difference between the different Chapters. This guide takes a look at Chapter 11 of the Bankruptcy Law, and gives you the important information that you need to know about it.
Chapter 13 Bankruptcy:
If you declare chapter 13 bankruptcy, it means that you are going to attempt to create a repayment plan with some, or all of your creditors. Chapter 13 is often called a “wage earner’s plan” because it depends on the regular income of the person declaring bankruptcy. Under the new repayment plan you will create with your creditors, you normally have your interest rates removed, or frozen, and a set amount of time to catch up past due payments – even on your mortgage.
If you don’t have a regular source of income, you would be best declaring Chapter 7 bankruptcy – that is, bankruptcy without a repayment plan. Some people are forced to declare Chapter 13 bankruptcy instead of Chapter 7 however, because their income is too high to pass the “means test” that Chapter 7 requires.
Who can declare chapter 13 bankruptcy?
Anyone can declare Chapter 13 bankruptcy as long as they meet these qualifications:
- You have a regular income
- Your unsecured debt must amount to less that $336,900 (Credit cards or Medical bills)
- Your secured debt must amount to less than $1,010,650 (Your house or your car)
- You must visit with a credit counselor within 180 days of filing for bankruptcy. Usually your bankruptcy lawyer will help you take care of this.
How do you file for Chapter 13 Bankruptcy?
The easiest way to file for Chapter 13 bankruptcy is to hire a lawyer to handle things for you. You can take care of everything yourself, but it requires a lot of research, stress, and legal knowledge. The benefit of having a lawyer handle it for you is twofold:
The cost of Declaring Chapter 13 Bankruptcy:
If you choose to hire a lawyer, they will have their own set fees that you will need to pay. Most lawyers are open to payment plans. Aside from that, there will likely be a small fee for credit counseling (You will have to have one session before, and one session after) though not all credit counseling companies charge you for counseling. The actual bankruptcy fees for filing Chapter 13 bankruptcy are a $39 administrative fee, and a $235 case filing fee.
What information should you take to your lawyer?
When you get everything together to visit your bankruptcy lawyer for the first time, make sure that you take these things with you:
- Last years tax returns
- Six month’s of proof-of-income
- A complete list of all your debt, with the contact information of your creditors
- Your mortgage, and / or auto paperwork
- A list of any property that you own, or other assets
- A detailed monthly budget / list of your living expenses
If you are married, but both spouses are not declaring bankruptcy, you must still gather all of this information together.
How does Chapter 13 Bankruptcy Work?
The benefit of a Chapter 13 bankruptcy is that you are essentially setting up a repayment plan with your creditors. You can expect to have between 3-5 years to pay back your debt under favorable terms. This means that you will most likely get to keep your home, and your car, as well as your other assets.
As soon as you meet with a lawyer to file for bankruptcy you are granted an “automatic stay”. This means that your creditors must stop calling you, or trying to contact you about your debt. If you do receive collection calls from your creditors, make sure that you give them your bankruptcy filing information, and the contact information from your lawyer.
You and your lawyer will work out a satisfactory repayment plan for all of your debt, and the court will approve it.
You will be expected to attend what is known as a “341” meeting – a meeting with your creditors. After that, you will also have to attend one more court session. From that point on, you must make your payments as agreed. Once all payments have been made, you will receive a bankruptcy discharge, and your bankruptcy proceedings will be finished.
Chapter 13 Bankruptcy is the best option for people who earn a regular wage, and who own property that they do not want to lose. The other most common bankruptcy option – Chapter 7 – does not stop foreclosure or repossession of a home or a car. If you want to keep your home and your car, then Chapter 13 is the best way to go.
A special note about foreclosure though – The bank can still foreclose on your property right up to the point that you get your “automatic stay.” So if you are facing foreclosure, and considering bankruptcy, make sure that you contact a lawyer soon enough to stop the foreclosure – otherwise you could lose your home.
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