Chapter 13 bankruptcy is also known as the wage earner’s plan. It’s a bankruptcy plan for individuals with regular income yet falling behind on debt payments. It helps these individuals develop a repayment plan to clear the whole or part of their debts.
Understanding how this works may be the key to helping you save your prospects in the face of serious losses. You can check out this video for a more extensive overview
How Does Chapter 13 Bankruptcy Work?
If you’re planning to pay in installments, you should prepare to do it within three to five years and no longer than that. Chapter 13 bankruptcy also holds that the repayment plan will be for three years if the state median exceeds the debtor’s income. The only thing that can change this is if the bankruptcy court decides otherwise.
On the flip side, if the debtor’s income is more than the median, it’s mandatory that they repay their debt within five years. During this period, it’s forbidden by law to start or continue collection efforts.
Other things you need to know about chapter 13 bankruptcy include:
1. Eligibility
Anyone is eligible for chapter 13 bankruptcy if the cumulative amount of their secured and unsecured debts is not more than USD$2,750,000 when they’re filing for bankruptcy relief. So, if you’re self-employed, operating a business, or working for a private or public company, you can file for chapter 13 bankruptcy.
It’s essential to note that chapter 13 bankruptcy is solely for individuals. Partnerships, NGOs, or limited liability companies can’t take this option.
Also, you’re only allowed to file for a chapter if your previous bankruptcy petition was dismissed 180 days before the current date. One reason you may get dismissed is if you fail to comply with the bankruptcy court orders. Also, deliberately failing to appear before the court can cause the court to dismiss your relief petition.
Another thing is that if creditors seek relief from the court to take hold of your property until you repay your debt, the chances that the bankruptcy court will allow your relief petition to move forward will be low.
Additionally, you can’t be a debtor under any bankruptcy chapter unless you’ve received credit counseling from a renowned counseling organization within 180 days prior to filing for relief. The only exceptions in this plan are if the companies offering the counseling are insufficient or if there’s an emergency.
2. The Process
When filing for a chapter 13 bankruptcy, there are steps you have to follow.
First, you should work with a professional bankruptcy lawyer to give you an overview of the whole process. Apart from the evaluation, they’ll give you a rough estimate of the costs you’ll incur when going through the process. These include the amount charged by the bankruptcy attorney and the filing fees.
Some of the documents you must provide include the following:
- Proof of sources of income
- A list of creditors and the total amount you owe each of them
- Your monthly expenses
- Tax information
- A list of leases and properties you own in your name
After your attorney has helped you organize your documents within 14 days of filing your petition, the court clerk will send you a letter informing you that the creditor will no longer hound you to pay them. Thus, your accounts’ collection activities have been suspended. The clerk will also send a similar letter to the court-appointed trustee and creditors.
The next step after that is proposing your repayment plan. In this case, an administrator or bankruptcy judge will set a hearing date when you’ll go to court and present your proposal. They will then determine if the repayment plan is according to the set standards and if it’s fair.
While at the hearing, creditors can either agree or object. The good thing, however, is that there’s a provision for altering your plan as often as possible before making the final decision.
Some of the things you need to know while at this step are that, after filing bankruptcy:
- It’s mandatory that you make all your mortgage payments on time.
- You’re not allowed to interact with your creditors directly.
- Your trustee can help you through your repayment process.
Once the hearing ends and you’ve agreed on a repayment plan, the next thing to do is stick to it. If anything happens and you delay or miss making payments, then there’s a high chance that the trustee can dismiss your relief petition, which will prove to be a massive setback.
If you want to free yourself from the agreement as fast as possible, there’s a provision for accelerating your payments. On the other hand, if your financial situation worsens, maybe because you’ve lost your source of income or your business isn’t working, it would be best to inform your trustee. They will help you find a solution by petitioning the court to modify the repayment plan.
3. Advantages
One great advantage of chapter 13 bankruptcy is that it gives you time to recollect and get your finances together. It allows the creditors to provide you with more time to clear your debts after the bankruptcy court has issued a ruling. Thus, you don’t have to worry about being auctioned or disturbed by creditors. This is because direct contact with them isn’t allowed as long as you’re under the act.
Moreover, chapter 13 bankruptcy protects you from loan consigners, especially if you’re determined to clear your loans. Also, unlike other bankruptcy chapters, where you need to wait for over five years before filing for another petition, Chapter 13 allows you to do it after two years.
Get All The Help You Need
Chapter 13 bankruptcy is a plan that helps individuals earn income, yet they need to be up to date with paying their loans and debts. It protects them from being hounded by creditors since it gives them time to readjust their finances to meet the repayment plan. Your source of income doesn’t matter here because your attorney can help you develop a proper debt repayment plan with the remaining assets you have. If you want to avoid foreclosure and pressure from creditors, then chapter 13 bankruptcy can be a viable option.
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