Chapter 13 Bankruptcy
Chapter 13 bankruptcy permits a person who has sufficient regular income to keep property, (i.e., a home or a car) otherwise susceptible to loss in the bankruptcy process. The United States Bankruptcy Code allows a debtor who has a steady income to offer to pay installments to creditors under the supervision of the court within a limit of 3- 5 years.
In Chapter 13, a court-approved repayment plan arranges for you to use your future income to manage and pay-off your debts during a period ranging from three to five years. This plan allows you to participate in a debt-management program, which reorganizes and consolidates liabilities into one reasonable monthly payment, rather than liquidating property. Chapter 13 also allows you to catch up on debts with arrearages such as your home or car, allows you to strip off junior mortgages under certain circumstances, and allows you to satisfy non-dischargeable debts such as domestic support obligations and taxes. You receive a discharge of your debts, after you have made the necessary payments under the plan.
A debtor’s current monthly income is compared to the state median income, and the findings set the parameters around how long the repayment plan will extend. A Chapter 13 Bankruptcy repayment plan cannot extend a timeframe of five years. During the repayment plan timeframe, Chapter 13 Bankruptcy law protects debtors from creditors’ initiation or continuation of collection efforts.
Who Can File for Chapter 13?
Chapter 13 requires that a person’s income is able to cover both their monthly living expenses and the court-mandated payment obligations. If your income is marginal or unsteady, or if your total debt is too high, the court will prevent you from filing Chapter 13. If you can fund a reasonable and feasible plan and fall below the debt limits, you can typically file for Chapter 13 bankruptcy relief.
The primary reasons to file for Chapter 13 are:
- There has been an Order of Discharge for a previous chapter 7 within 8 years
- The means test for a Chapter 7 has failed
- The payments for a mortgage, equity line, or home owners association in arrears are being caught up to save the home from foreclosure
- Non-dischargeable debts such as back owed taxes and domestic support obligations are being satisfied through the plan
- There are non-exempt assets and liquidation of those assets to file under Chapter 7 is not an option
- Possible protection for co-signers
Advantages of Chapter 13 Bankruptcy
Chapter 13 bankruptcy makes sense for people who own secure property that they want to retain, but are behind on payments. If your secure and unsecured debts do not exceed a certain amount, Chapter 13 may help you to meet your debts while retaining the property that secures the debt.
You can file for Chapter 13 bankruptcy relief if you own a business or are self-employed, and if your unsecured debts (not used as collateral for debts) are under $ 394,725 and your secured debts (collateral for other debts) fall under $ $ 1,184,200. A corporation or partnership cannot under any circumstance file for Chapter 13 Bankruptcy.
Filing for Chapter 13 bankruptcy may also enable you to protect co-signers on certain debts accrued. A co-signer is still liable for a debt even if that debt has been discharged for the primary debtor in a Chapter 7 bankruptcy case. A co-signer is protected as long as the debtor holds up their end of the bargain in a Chapter 13 repayment plan. You may request the co-signed loan receive priority payment status and have the full amount of the loan paid off, but there is no guarantee this will be granted. Although this will fully protect your co-signer, it may not always be the most beneficial to your finances.
What Is Required to File for Chapter 13 Bankruptcy?
You will meet with our firm, assess your case and possible issues, decide which chapter is best, then you will be given direction of all documentation and information needed in order to prepare your petition. This information and documentation is part of the strict due diligence requirements and allows your income, expenses, businesses, liabilities, assets, and recent transactions to be fully disclosed. Some of these documents are tax returns, paystubs, and divorce decrees. Whether filing Chapter 13 Bankruptcy as a joint petition or separate individual petitions, or if just one spouse is filing chapter 13, some information must be included for spouse.
If only one spouse files Chapter 13 Bankruptcy, the income and expenses of the non-filing spouse are still required. This is needed so the court, the trustee, and creditors can examine the financial circumstances of entire household. Furthermore, all debtors are required by law to complete a credit counseling course prior to filing a bankruptcy petition at an approved provider of the United States Department of Justice. This ensures that you have explored non-bankruptcy options before filing.
Once the petition is complete it is filed with the Court. The current court fee for filing a Chapter 13 bankruptcy is $310 and the fee for a chapter 7 bankruptcy is $335. An “Automatic Stay” goes into effect and your creditors are required to stop harassment and most collection efforts as soon as your case is filed. About 30-45 days after your petition is filed, a Meeting of the Creditors called a “341 meeting”, will be held. The trustee assigned to the case will lead and ask questions about the contents of the bankruptcy petition. You must be present at the meeting to answer questions under oath and under penalty of perjury about your assets, liabilities, income, plan, and petition. Most 341 meetings are uneventful and short. Creditors are permitted to attend and to ask the debtor questions under oath. However, creditors usually do not attend.
After the 341 Meeting of Creditors any changes necessary will be made to the petition and/or plan that the Trustee requests. The next step is to get your Chapter 13 Plan approved. The firm appears in court on your behalf, without your presence required, until the Plan is recommended for confirmation of the Court by the Trustee. The final approval of the plan of reorganization will be confirmed and so ordered by the judge. All creditors are bound to the terms and conditions of the confirmed plan.
If you have done everything to try and pay off your debt and are searching to prevent foreclosure and retain other property, Chapter 13 bankruptcy may be the best for you. You can stop foreclosure, creditor harassment, and accomplish a repayment plan for your debt through Chapter 13.
Bob King has significant experience with Chapter 13 Bankruptcy cases. He has successfully represented clients in Chapter 13 throughout the state of Florida. Contact Bob King for a free initial consultation to get answers to your questions about the process to file Chapter 13 Bankruptcy. Contact him today at (941) 706-0632, or via email.