In a previous blog post we discussed some of the highlights of a Chapter 7 bankruptcy filing, citing it as the most used type of bankruptcy remediation. In this blog post we will focus on the second most popular type of bankruptcy filing, a Chapter 13 bankruptcy. In a Chapter 7 bankruptcy your assets, such as money or property, will be used to pay off your debts. You are only allowed to file a Chapter 7 bankruptcy if it is determined that any income you make is not sufficient to repay the debts you owe.
A Chapter 13 bankruptcy allows you to keep your property and repay your debt over a period of time by following a three-to-five-year repayment plan.
As with a Chapter 7 bankruptcy, if you file for a Chapter 13 bankruptcy you can’t eliminate child support, alimony or certain tax debt so it is always best to consult a bankruptcy attorney to determine your best option based on your individual situation.
Advantages of Chapter 13
Chapter 13 bankruptcy has some advantages. If you own a home, Chapter 13 can stop your home from being foreclosed / seized by a lender, allowing you time to catch up on missed payments or the ability to negotiate new payment arrangements. Any debts that are in collections and are discharged during your Chapter 13 filing can’t be collected from you. Also, the law requires that creditors do not start or continue collection efforts against you while you are in Chapter 13.1
You may be able to save money while paying down your debt, as you can make one consolidated monthly payment that is then distributed to your creditors without the hassle of interest rates going up or being hit with extra penalties and fees.2 Having three- to five-years to pay your debts, making payments that you can afford, can also make it possible to more easily pay off certain debt. You will have to stick to the repayment plan, keeping up with taxes, child support and alimony payments, in order to keep your Chapter 13 status.
A Chapter 13 bankruptcy will remain on your credit report for up to seven years.3 Creditors often view a Chapter 13 bankruptcy filing as more favorable than a Chapter 7 filing because you are paying off the debts you owe on a consistent basis. Finally, if you have a co-signer on any consumer debt you might have incurred that co-signer will be protected.4
Qualifying for Chapter 13
To qualify for a Chapter 13 bankruptcy, you need to have regular, stable income with money to pay off your debts over and above what it costs you to meet your living expenses and secured debt payments. Secured debts are those where property, like your home or car, can be taken by a creditor if you don’t pay the debt. A regular, stable income can be derived from self-employment or by operating an unincorporated business. To qualify for Chapter 13 bankruptcy you currently have to have unsecured debts of less than $394,725 and secured debts less than $1,184,200.5
As with a Chapter 7 filing, to be eligible for Chapter 13 bankruptcy you must have received credit counseling from an approved agency within the 180-day period prior to your filing and if a debt management plan was developed during that credit counseling, it must be filed with the court.
Chapter 13 Checklist
As with a Chapter 7 filing, you will be required to provide the court with documentation. This includes a listing of your assets and liabilities; a listing of your current income and expenditures; a listing of executory contracts and unexpired leases; a statement of financial affairs; evidence that you have attended credit counseling; evidence of payment from employers which had been received within the 60 days before filing; a statement of monthly net income and any anticipated increases to income or expenses after filing; a record of any interest the debtor has in federal or state qualified education or tuition accounts; a copy of your tax return or transcript for the most recent tax year as well as tax returns filed during the case.6 If you are married, you have the option of filing individually or jointly.
Enlisting the help of a bankruptcy attorney will ensure that you file the proper paperwork and make the best decision for your individual situation. With both long-term financial and emotional impacts, bankruptcy is best done with the guidance of a professional.
Hines Law is a Massachusetts Bankruptcy Firm ready to safeguard your interests and help rebuild your future. With 20+ years’ experience, our bankruptcy attorneys have the knowledge and expertise to expedite your case with the right debt solution. If you are in financial straits, drowning in debt, and overwhelmed with your finances, personal bankruptcy may be an option for you. Call us today for a Free Consultation!
1,4,5,6 Chapter 13 – Bankruptcy Basics
2 Chapter 7 vs. Chapter 13 Bankruptcy – Which Should You File?
3 What’s the Difference Between Chapter 7 and Chapter 13 Bankruptcy?, by Sarah Brady, 7/16/2020