What is Chapter 13 Bankruptcy?
While Chapter 7 bankruptcy is about liquidating assets to pay off your debts before the remaining balances are met, Chapter 13 is about creating a court-ordered plan to pay off your debts. Bankruptcy attorney helps people in chapter 13 bankruptcy cases to get deserving rights.
With Chapter 13 you will have at least some income preserved and you won’t exactly be on the street. But there is no reasonable way that you are going to pay everything you owe.
The Challenges of Filing Chapter 13 For Individual & Businesses
While you might think it would be easier to get creditors to agree to a tight payment schedule than it would be to get you to pay off your debts. However, the opposite is often the case.
Fact: Two-thirds of all Chapter 13 filings are discarded or converted to Chapter 7.
Oftentimes, it’s best from the lender’s perspective to convert your filing to a Chapter 7 so that assets like your home can be liquidated to pay off your debts right away.
This is often better for the lender, because they get money quickly and get out of trouble, rather than waiting for the low payments that the court will assign with a Chapter 13. It is better to hire a bankruptcy attorney who can help you to face such challenges.
Why Chapter 13 is Usually Better Businesses and individuals
So a Chapter 7 bankruptcy is better for the lender, but what’s in it for you? Not surprisingly, it’s Chapter 13.
It is usually the best option, if
- You have significant personal assets and you don’t want to lose them in a liquidation. A good example is if you have a large amount of equity represented by the equity in your home. Conversely, if you are in serious trouble with your mortgage due to the real estate collapse, you probably won’t care if that asset is liquidated.
- You have a steady income, but your unsecured debt payments are destroying your monthly finances. If all your money problems are caused by too many credit card bills and delinquent card bills, adjusting your payment schedule can put you in a better place without risking your assets.
In a Chapter 13 bankruptcy, you try to repay your creditors instead of eliminating your unpaid debts. You propose a repayment plan to make payments to creditors over 4-5 years.
If your current monthly income is lower than the state median income for the same family size, the plan will last for 3 years. If your current monthly income is above the state average, the plan will be for 5 years. In such situations people hire bankruptcy attorney to help them during legal trials.
A judge reviews the reimbursement plan and decides whether to approve it. If the plan is approved, payments are made to the servicer, who in turn pays creditors who submit a proof of claim. The proof of claim will list the type of debt and the amount of the debt. You can keep some assets that you would have lost if you filed for Chapter 7
In Chapter 13 bankruptcy cases you must pay your creditors in full if you can. If that is not possible, you must pay all of your disposable income for 4-5 years. Disposable income is what remains after paying necessary living expenses.
After the repayment plan is completed, you will get a discharge of your debts. You must pay in full during the plan certain back taxes and any child support obligations. Also, some types of debts will not be erased.
It is essential to speak with an attorney, if possible, before filing for Chapter 13 bankruptcy, because creating a payment plan is a difficult thing to do.
Eligibility of Chapter 13 Bankruptcy for Individuals & Businesses
You can file for Chapter 13 bankruptcy as long as:
- Unsecured debts are less than $ 419,275
- Guaranteed debts are less than $ 1,257,850
You cannot file a Chapter 13 bankruptcy if, during the 180 days prior to filing a new bankruptcy, a previous bankruptcy was dismissed because:
- You have not followed a court order; or
- You have requested the dismissal.
Also, within 180 days of filing bankruptcy, you must receive credit counseling from an approved credit counseling agency. In case you need legal help consult a bankruptcy attorney to help you in your case.
What to Watch Out for Before Filing for Bankruptcy
Declaring bankruptcy is not a good idea for everyone. This is a serious step, and you should only file bankruptcy if you know it will help you. If possible, you should speak to a lawyer before filing for bankruptcy.
Reasons for Filing Bankruptcy:
- Debts can be eliminated (erased), giving you a fresh start
- Bankruptcy ends wage garnishment and collection agency harassment
- Foreclosures and liens stop and cannot proceed unless the court allows it
- You can keep the exempt assets
- You can stop the outage, or restore service after paying a reasonable deposit, and then pay only for current service
- Employers and public agencies cannot retaliate against you for filing bankruptcy
- If your driver’s license has been suspended for failing to pay a discountable debt in bankruptcy, you may be able to get your license back.
Reasons Not to File Bankruptcy:
- Some debts, such as student loans, may not be canceled (written off)
- Bankruptcy stays on your credit rating for 7 to 10 years
- Getting a loan can be more difficult or more expensive
- It can cause tensions in relationships with some creditors and co-signatories
If you are not sure whether to file a case or not, it is better to hire a bankruptcy attorney.
Hope this article helps you to know about Chapter 13 Bankruptcy for individuals and businesses!