What is a Chapter 13 Bankruptcy?
A Chapter 13 bankruptcy refers to Chapter 13, Title 11 of the United States Code which gives individuals debt relief by reorganizing their financial affairs while under protection from creditors by the U.S. Courts.
The benefits of a Chapter 13 bankruptcy include:
- Optimal repayment terms (i.e. 0% Interest on general unsecured debts);
- A way to consolidate, restructure and reduce your debt;
- The time and breathing room to improve your credit and reach your financial goals in an orderly fashion.
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Who Qualifies you for Chapter 13 Bankruptcy?
To be eligible for a Chapter 13 bankruptcy, you must meet certain criteria that includes:
- Being up-to-date on filing all of your tax returns
- Having no more than $419,275 of unsecured debt and $1,257,850 of secured debt
- Having enough disposal income available to make a monthly payment to reorganize your debt, knowing that all general unsecured debt may not get paid in full.
You will need to show the courts that you meet all of the qualifications, particularly that you have enough disposal income in order to make monthly payments towards your debt.
Is Chapter a 13 Worth It?
Entering into a Chapter 13 bankruptcy is a serious financial consideration that is unique for each individual attempting this bankruptcy. The best thing to determine if Chapter 13 bankruptcy is the correct path for your situation is to have a free consultation with an experienced bankruptcy attorney.
Most people find Chapter 13 bankruptcies worth it. This type of bankruptcy allows you to:
- Keep your home,
- Remove second mortgages,
- Keep secured assets safe,
- Lower your vehicle payments,
- Pay 0% interest toward general unsecured debts,
- Reduce and eliminate unsecured debts
- Improve your credit,
- Stop garnishments, harassing calls and utility shutoffs,
- Gain financial freedom!
Learn more about the benefits of Chapter 13 bankruptcy >>
What Happens When You File a Chapter 13 Bankruptcy
Working with an attorney will help you develop a repayment plan taking into consideration your income and all of your monthly expenses. They can prioritize certain debts (i.e. getting caught up on a first mortgage) that will get paid through the plan before other bills (i.e. credit cards). Here are the steps in the bankruptcy process:
File a petition for Chapter 13 bankruptcy and receive an automatic stay against your creditors. It now becomes illegal for debt collectors to attempt to collect money from you.
- A trustee will be appointed to your case to oversee your files and communicate with all parties.
- The courts will send a bankruptcy notice to your creditors, they may file objections to your plan if there is a dispute about the debt.
- Submit a tax return.
- Begin making payments on your repayment plan.
- Attend a creditor's meeting.
- You may modify your plan and then hold a confirmation hearing.
- Creditors file proof of claims.
- Trustees will send periodic statements.
- Submit proof of filed income tax returns each year.
- File proof of financial management course completion.
- Court grants discharge.
How to File Chapter 13
Filing a Chapter 13 bankruptcy requires a lot of paperwork and is a complicated process. Your first step should be seeking an attorney for help through the process.
Working with an attorney will help you determine if bankruptcy is the right choice. This process includes analyzing your current debt, valuing your current property and gauging if you have enough income to qualify for a Chapter 13 bankruptcy.
You will then be required to take a pre-filing credit counseling course. Once this is complete, your attorney can file the required paperwork and start the bankruptcy process.
What Can You Keep in Chapter 13?
While each situation is different when filing for a Chapter 13 bankruptcy, generally you are allowed to keep your car, home and other property. This does not mean that you won’t have to make monthly payments to keep those properties, but they will remain in your possession.
Will I Lose My House if I file for a Chapter 13?
A Chapter 13 bankruptcy is a debt consolidation plan designed to help you keep your home, assuming you have income to support making the payments. Filing the Chapter 13 plan will legally protect your home from foreclosure as long as the petition is filed with the court before the foreclosure sale occurs.
Learn more about keeping your house during bankruptcy >>
How Long Does a Chapter 13 Take?
A Chapter 13 bankruptcy takes 3-5 years to complete. Once the discharge process begins, it can take 6-8 weeks for the discharge to occur. This process starts once you have completed your payment plan over the 3-5 years and meet all other requirements. The Chapter 13 Trustee will do a final audit to make sure all payments have been completed.
Which is better? Chapter 7 or Chapter 13 Bankruptcy?
A Chapter 13 Plan’s primary focus is to pay mortgage debt (or rent obligation), vehicle loans, delinquent property taxes, and other secured debt obligations prior to paying credit cards, medical bills, consumer loans and other unsecured debts. If there is very little income left after paying your mortgage or rent, car payment and monthly living expenses (food, clothing, utilities, etc.), then some or all of your general unsecured debt in the Chapter 13 Plan may be eliminated.
Chapter 7 bankruptcy is primarily a debt elimination program: A Chapter 7 is designed to bring swift resolution to debt by eliminating general unsecured debts, such as:
- Credit cards;
- Medical bills;
- Personal loans;
- Loan deficiency debt following repossession or foreclosure
- Judgments and garnishments;
- Old utility bills, etc.
View the key differences between Chapter 13 and Chapter 7 bankruptcy >>
What Happens After a Chapter 13 Discharge?
After you have completed your payments, the discharge process takes about 6-8 weeks to complete. At that time, you are relieved from any dischargeable debt. Your Chapter 13 Trustee will audit your bankruptcy, approve the discharge and then you will be on your way to financial freedom.
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Can I Go on Vacations While in Chapter 13?
Yes. It is possible to go on vacation during a Chapter 13 bankruptcy. Early on in the bankruptcy process, your attorney can help to get vacation spending approved. This may be reviewed by the Trustee overseeing your case.
Although the goal is to pay back your creditors as you progress through the Chapter 13 bankruptcy process, there may be some room in your budget to spend money on your family. This includes vacations.