The decision to file bankruptcy is never easy and, during this time, most people are met with a high level of uncertainty. Most bankruptcies filed in the United States are either Chapter 7 or Chapter 13 cases. Determining which one is right for you is based on a variety of factors including assets, debts, income level, and your financial goals. Meeting with an experienced bankruptcy attorney will help you determine which one is right for you.
Here are the basics of Chapter 13 bankruptcy:
What Is Chapter 13 Bankruptcy?
Chapter 13 is a reorganization bankruptcy designed for debtors with a steady income that can pay back at least a portion of their debts through a repayment plan. People who make too much money to qualify for a Chapter 7 often qualify for Chapter 13 bankruptcy. If your income is irregular or too low, the court may not allow you to file for Chapter 13. In Chapter 13, you get to keep all of your property, including nonexempt assets. In turn, you pay back all or a portion of your debts through a repayment plan.
Before you can file for bankruptcy, you must receive credit counseling from an agency approved by the United States Trustee's office. These agencies are allowed to charge a fee for their services, but they are also required to provide counseling at a reduced rate for people who cannot afford it. In addition, you'll also need to pay the filing fee and fill out a number of forms. Your bankruptcy attorney will be able to explain the paperwork and fees that are associated with bankruptcy.
The Chapter 13 Reorganization Plan
The most important part of your Chapter 13 paperwork will be the reorganization plan. Your reorganization plan will describe how you will resolve your debts. Chapter 13 requires that you pay certain debts in full. These debts are called "priority debts" because they're considered important enough to jump to the front of the bankruptcy repayment line. Common priority debts include child support and alimony, wages you owe to employees and certain tax obligations.
In addition, your reorganization plan must include your regular payments on secured debts, such as a car loan or mortgage or some other treatment such as surrender or modification. The plan must show that any disposable income in your budget will go towards paying your unsecured debts, such as credit card or medical bills. You don't necessarily have to repay these debts in full, but must show that you paying all disposable income towards their repayment.
How Long Will My Reorganization Plan Last?
The length of your reorganization plan depends on how much you earn as well as its affordability based upon meeting certain obligations. Your reorganization plan can be anywhere from three to five years depending on your average monthly income over the six months prior to the date you filed for bankruptcy.
If for some reason you can't finish a Chapter 13 plan due to financial hardship, the court may modify your plan or might let you discharge some of your debts early on the basis of hardship if certain requirements are met. If the court won't let you modify your plan or give you a discharge, you might be able to convert to a Chapter 7 bankruptcy. You also have the option of asking the bankruptcy court to dismiss your Chapter 13 bankruptcy case.
Before filing bankruptcy, it's important to meet with an experienced bankruptcy attorney. An attorney will guide you through the process and help you during your Chapter 13 bankruptcy.