What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is also referred to as debt reorganization or debt adjustment. This is due to the fact that this form of bankruptcy protection does not eliminate your debt, but rather restructures the debt into a payment plan that is based on your ability to pay over the course of 3–5 years. It is sometimes referred to as “wage earner” bankruptcy because you must have an ongoing income since you are required to make regular monthly payments according to a payment plan. This form of bankruptcy can be a good option for those that do not qualify for Chapter 7 bankruptcy protection, as well as those that are interested in retaining a greater portion of their assets and property (assuming they have the ability to make payments according to the payment plan). Chapter 13 bankruptcy also offers a broader discharge of debts than Chapter 7. Our skilled Boca Raton Chapter 13 bankruptcy lawyers are committed to helping you find a way out from under your debt.
How to Qualify for Chapter 13 Bankruptcy
The first thing you need to do is to determine if Chapter 13 bankruptcy protection is right for you or if you would be better served by filing Chapter 7. For some debtors, it is not an option due to income qualifications for Chapter 7.
Once you’ve determined that Chapter 13 bankruptcy is the best option for you, you then need to file a petition with the bankruptcy court. Chapter 13 bankruptcy is not for everyone, and for those who qualify for Chapter 7 bankruptcy protection, it is usually not the preferred option. However, there are some reasons to consider Chapter 13 bankruptcy.
The first, of course, is if you are facing serious financial difficulties and do not qualify for Chapter 7 protection. Another reason to consider Chapter 13 over Chapter 7 bankruptcy is due to the fact that you can keep all of your assets and property.
Chapter 13 is often a good solution for individuals that have ongoing income but who are having extreme difficulty keeping up with their monthly debt payments. The debt restructuring plan can allow people to retain their assets, come up with a manageable way to pay back their debt, and can stop collection agency harassment, late fees, high interest rates, and home foreclosure action.
The Advantages of Chapter 13 Bankruptcy
- Allows you to keep assets and property that may otherwise be lost if you filed Chapter 7 and also provides you with protection under federal bankruptcy law even if you do not qualify for Chapter 7 bankruptcy.
- Provides you with a way to stop a foreclosure action on your home, halt IRS collection efforts, prevent collection agencies from harassing you, and gives you time to rebuild your credit and reinstate a mortgage that is in default.
- In some cases, it may even provide you with the opportunity to strip away an HOA lien and second and third mortgage on your home.
- Offers a broader discharge of debts and may allow you to retain non-exempt property and assets, including investment properties. It may also be a good option for those trying to keep their businesses open even while filing bankruptcy.
- You can begin rebuilding your credit after filing and the strength of your credit at the time of bankruptcy discharge may already be stronger than it was when you originally filed for bankruptcy.
The Chapter 13 Bankruptcy Process
Once you’ve determined that Chapter 13 bankruptcy is the best option for you, you then need to file a petition with the bankruptcy court.
- A proposed debt repayment plan will then be created based on your income, assets, liabilities, living expenses and other pertinent financial criteria. Calculations for the amount of debt you are capable of repaying each month will be determined based on your current and future income levels, as well as your living expenses.
- A portion of your disposable income, after all necessary living expenses have been calculated, will be deemed available to be utilized for debt repayment and the payment plan devised will be put in place for a period of 3–5 years. Non-exempt assets may also factor into the calculation of how much you are able to pay.
- Once the petition is filed and the debt repayment plan is created, you will need to attend a Section 341 meeting with a court-appointed trustee and your creditors (although it is rare that creditors attend). We will be with you during this meeting and this is the only time that you will have to meet face to face with the trustee or potentially with creditors.
- All home foreclosure actions must cease and creditors can no longer contact you directly. You will begin making monthly payments according to the plan no later than 30 days after filing.
- Monthly debt repayments will be made to the bankruptcy trustee, who will then distribute the funds to your creditors pro rata and the terms included in the debt repayment plan.
- Once you have completed all of the payments as set forth in your Chapter 13 debt repayment plan, you are discharged of any remaining debts to your creditors. In essence, you are provided with a “clean slate” or “fresh start”.
Types of Debt that are Not Dischargeable
- Student loan debt
- Alimony or child support debt
- Debts from certain types of taxes
- Certain types of court and attorney fees
- SEC violations
- Claims of fraud
How Repayment Plan is Determined When Filing Chapter 13 Bankruptcy
Once all financial documentation has been submitted to your bankruptcy attorney, they will determine the monthly payment amount that you can make to satisfy debts. This amount is based on a calculation of current and future income levels as well as a consideration of reasonable and necessary living expenses. A portion of the funds remaining at the end of the month, considered “disposable income”, is required to be used to pay your creditors. Once the monthly payment is determined and a debt repayment plan is put into place (typically spanning 3 -5 years), the debtor makes one monthly payment to the trustee, who then distributes the funds to creditors on a pro-rata basis.
How Chapter 13 Bankruptcy Affects Your Credit Report
Filing Chapter 13 can be on your credit report for up to 10 years. Since you will be repaying debts, your credit will likely strengthen after filing.
Bankruptcy Attorney in Boca Raton
Restructure Your Debt and Get Your Life Back on Track
If you are seeking legal guidance for Chapter 13 bankruptcy, our attorneys can assist individuals that are struggling with debt. We understand that this is a difficult time and we can provide the help and support that you need in order to get the best outcome.
For more information, contact Klein Law Group at 561-353-2800 to set up a free consultation today.