Bankruptcy is often a pretty disheartening situation to be involved in, for a number of different reasons. One of the most frustrating aspects of bankruptcy is figuring out what bankruptcy type is right for you. There are several options, with two being the most common: Chapter 13 and Chapter 7. Chapter 7 is typically a last resort option, while Chapter 13 is a little more doable for many. But how does a Chapter 13 bankruptcy case work?
How does Chapter 13 bankruptcy work?
The best way to boil Chapter 13 bankruptcy down to its basics is to sum it up as the avenue for people who can, given enough time, pay off their debts. Where Chapter 7 bankruptcy involves liquidating all of your assets that are non-exempt, Chapter 13 bankruptcy gives you the chance to deal with your debts without having to give up your property. If you think you can repay your debts, you may need a Chapter 13 bankruptcy lawyer to represent you.
The way this is handled is that you, working with your creditors, create a repayment plan that would ensure that creditors get their money, while you do not find yourself up a creek without a paddle. This repayment plan allows you to pay off your debt in installments, usually over a span of three to five years. How long a span of time the repayment plan lasts is going to vary depending on the circumstances of your income, but under no circumstances may the repayment plan last for more than five years. During this period, creditors are barred from beginning or continuing its collection efforts, so long as you are able to keep up with your repayment plan as scheduled.
A major advantage of Chapter 13 bankruptcy is that when you file it, if foreclosure proceedings have been opened for your home, said proceedings must cease, allowing you the time to deal with your delinquent mortgage payments over the three to five years allotted. On top of this, if any co-signers are attached to your debts owed, they may be able to not have to deal with it if you file Chapter 13 bankruptcy.
Not everyone is able to file Chapter 13 bankruptcy, however, as there are certain criteria each person must meet. This limitation comes in the form of the amount of unsecured debt and secured debt. The caps for these are $394,725 and $1,184,200 respectively, though this is not how much the cap will be forever. These caps are adjusted periodically as changes in the consumer price index change. Additionally, a corporation or partnership is not eligible for Chapter 13 bankruptcy, as only individuals may file under this chapter. In addition, there are certain things that may limit your ability to successfully file. For instance, if they had filed a bankruptcy petition 180 days or earlier and either willingly did not show up or was dismissed by you after creditors sought relief from the court to deal with their liens on your property, your Chapter 13 bankruptcy filing will likely be dismissed. On top of this if you have not received credit counseling from an approved agency. Exceptions can be made for this in case of emergency, or if you have no proper method to receive said counseling.
If you have done everything correctly beforehand, the next step is to actually file. You would file with the bankruptcy court that serves your respective area. In most situations, you must also include certain things with the filing. These include schedules of asset and liabilities, a schedule of your current income and expenditures, a schedule of active contracts and leases, and a statement of your financial affairs. You must include proof that you received credit counseling, as well as proof of your debt repayment plan. Evidence of payment from your employer in the past 60 days before filing should also be included if applicable, as well as your monthly net income (and any increase to your net income you anticipate occurring). Any interest you have in education and tuition accounts, state or federal, should also be included. Be sure to include tax returns filed most recently.
As part of the Chapter 13 petition, an independent trustee is appointed as part of the administration of your case. Sometime between 21 and 50 days (60 days at max in unusual situations), the trustee will hold a meeting of creditors, where you are asked questions of your financial situation, as well as the terms of the plan, having sworn to the trustee to tell the truth. The repayment plan has to be filed either with the petition, or no more than 14 days after filing. The trustee is then made responsible for distribute what you owe to the creditors through the repayment plan. The repayment plan will give priority to priority, secured, and unsecured debts in that order. There are a lot of other details to do with Chapter 13 bankruptcy, which can be hashed out by consulting with a Chapter 13 bankruptcy lawyer.
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