If your debts have become unmanageable, filing for Chapter 13 bankruptcy may be the best option for resolving your financial problems and putting yourself on the path to financial stability.
Chapter 13 is a process by which your finances are reorganized. Instead of liquidating your assets to pay off your debts, you and the court work with your creditors to put together a manageable payment plan for you to pay off your debts over a period of a few years.
As a result, Chapter 13 can allow you to get out from under unmanageable debt, while letting you to keep much of your property and other assets.
At Loan Lawyers, our attorneys concentrate on crafting the best debt solutions for each of our clients. We work tirelessly to help individuals, families, and businesses resolve financial difficulties in a way that best suits each individual situation.
Contact us today to learn more about how our legal team can help you resolve your outstanding debts and put you on a path to financial strength.
Why Choose Chapter 13 Bankruptcy?
Individuals who are considering bankruptcy tend to choose Chapter 13 bankruptcy over Chapter 7 bankruptcy, either because their income and assets exceed the limits to qualify for Chapter 7 bankruptcy, or because they wish to keep assets and properties that would otherwise have been sold off in a Chapter 7 bankruptcy.
Chapter 13 bankruptcy is often a better choice for individuals – whose income is sufficient to make regular monthly payments on outstanding debt – without the need to liquidate significant assets.
People often choose to file for Chapter 13 bankruptcy in circumstances such as:
- Falling behind on mortgage, car loan, or student loan payments
- Hoping to establish manageable payments to pay off non-dischargeable debt
- Looking to keep ownership of business assets without having to use the more expensive and complicated Chapter 11 bankruptcy process
- Wanting to avoid the greater credit score hit from a Chapter 7 bankruptcy
If you are wondering whether Chapter 13 bankruptcy is the right solution for you, you should contact our knowledgeable bankruptcy attorneys to discuss your situation in greater detail.
Chapter 13 Qualifications
Chapter 13 bankruptcy is available only to an individual person, spouses filing jointly, or a business organized as a sole proprietorship. A debtor must demonstrate to the court that they have sufficient income to cover the payments under their proposed repayment plan.
Chapter 13 also has specific debt limits, which are updated from time to time. As of 2019, the Chapter 13 debt limits were:
- Unsecured debts: maximum of $394,725
- Secured debts: maximum of $1,184,200
What Happens When You File Chapter 13?
A Chapter 13 bankruptcy case begins when you file a petition with the bankruptcy court. Typically, you are required to file, along with your petition, the following documents:
- Schedule of assets and liabilities
- Schedule of current income and expenditures
- Schedule of executory contracts and unexpired leases
- Statement of financial affairs
- Certificate of credit counseling
- Proposed debt repayment plan developed through credit counseling
- Evidence of payments received from employers in the 60 days prior to filing your petition
- Statement of monthly net income
- Statement of anticipated increases in income or expenses after filing
- Record of interest on federal or state qualified education or tuition accounts
You are also required to provide the bankruptcy trustee with a copy of your most recently filed tax return, along with any tax returns you file during your case.
When you file a Chapter 13 petition, the court appoints an impartial trustee to administer your case. The trustee is empowered to evaluate the circumstances of your case and serves as a disbursing agent, collecting money from you and making payments to your creditors.
In addition, when you file a bankruptcy petition, it imposes something called an “automatic stay.” This is imposed without any judicial action and stops most collection actions against you or your property. Certain types of collection actions listed in the statute are not subject to the automatic stay.
As long as the stay is in effect, creditors cannot initiate or continue lawsuits, wage garnishments, or even contact the debtor to demand payment. The court will provide notice of the case to all creditors identified by the debtor. The automatic stay also prohibits creditors from attempting to collect a consumer debt that is owed jointly with another person.
Within 50 days of filing the petition, the trustee will hold a meeting of creditors, during which creditors are permitted to ask questions of the debtor, while under oath, regarding the debtor’s financial affairs and proposed repayment plan. This meeting is intended to resolve any issues creditors may have with the debtor’s proposed repayment plan.
Unsecured creditors are required to file a claim with the bankruptcy court within 90 days (180 days for a government agency) of the first meeting of creditors to be eligible to receive distributions from the bankruptcy estate.
Within 45 days of the creditor’s meeting, the court will hold a hearing to confirm the debtor’s proposed repayment plan. Once the bankruptcy court confirms a plan, the trustee will, as soon as practicable, begin distributing funds received from the debtor.
Ultimately, the debtor can obtain a discharge of all debts under the bankruptcy plan, provided they have completed all payments under the repayment plan, paid all domestic support obligations, not received a discharge in the past two to four years, and completed an approved financial management course.
Understanding the Chapter 13 Repayment Plan
The Chapter 13 repayment plan sets forth how the debtor proposes to repay his or her creditors. A repayment plan must provide for fixed payments to the trustee on a regular basis, such as biweekly or monthly; the trustee then distributes those funds to creditors according to the terms of the plan. Creditors may ultimately receive less than full payment on their claims.
Repayment plans lump creditors’ claims into three categories: priority, secured, and unsecured. Priority claims receive special status under bankruptcy law, and typically include tax liabilities and expenses incurred in the bankruptcy proceeding.
- Secured claims are those in which the creditor has the right to seize collateral that is securing the underlying debt if the debtor defaults. Examples include mortgages and car loans.
- Unsecured claims are those for which a creditor has no right to collect against particular property owned by a debtor. Examples include credit card debt and personal loans.
A repayment plan must pay priority claims in full unless a priority creditor agrees to different treatment. With secured claims, if the debtor wishes to keep the collateral, the plan must provide the secured creditor with at least the value of the collateral.
If the loan was used to purchase the collateral, however, and the debt was incurred within a certain time prior to the bankruptcy filing, the plan must provide full payment of the debt, not just the value of the collateral. Payments to secured creditors may be made on the original repayment schedule so long as any money already owed – known as “arrearage” – is satisfied during the plan.
Unsecured creditors do not need to be paid in full under a repayment plan if the plan required the debtor to pay all projected “disposable income” over an “applicable commitment period” – between three and five years – and as long as unsecured creditors receive at least the amount they would have received under a Chapter 7 bankruptcy.
Chapter 13 vs. Chapter 7
The primary difference between Chapter 13 bankruptcy and Chapter 7 bankruptcy is that Chapter 13 is a reorganization of the debtor’s finances to pay down liabilities over time, according to a repayment plan. Chapter 7 bankruptcy involves liquidation of the debtor’s assets to provide lump sum payments – usually “pennies on the dollar” – to creditors.
While Chapter 13 bankruptcy requires a debtor to continue making payments to debtors for several years, according to the repayment plan, before any debts can be discharged, Chapter 7 bankruptcy discharges debts immediately upon liquidation of the debtor’s bankruptcy estate.
Chapter 13 has the benefit of being less damaging to the debtor’s credit, and allows a debtor to keep assets and properties that would otherwise be sold off in a Chapter 7 bankruptcy.
How Long Does Chapter 13 Bankruptcy Take?
The court proceedings of a Chapter 13 bankruptcy can take several weeks to complete, depending largely on the scheduling of the trustee and the bankruptcy court. A debtor has up to 14 days from the filing of a Chapter 13 petition to submit a proposed repayment plan. The first creditors’ meeting may not take place until as long as 50 days after filing of the petition. The bankruptcy court then has 45 days from the first creditors’ meeting to hold a confirmation hearing.
The confirmation process will take as long as is necessary, until a bankruptcy judge concludes the proposed repayment plan is feasible and meets the standards under the Bankruptcy Code. Chapter 13 court proceedings can take as little as 100 days, or can take many more months if there is significant objection to the debtor’s proposed repayment plan.
Thereafter, a repayment plan will last between three and five years, after which the debtor can seek discharge of his or her unsecured debts.
How Our Chapter 13 Bankruptcy Lawyers Can Help You
If you retain Loan Lawyers to assist you with your Chapter 13 bankruptcy, our attorneys will call upon their knowledge and decades of experience helping people through bankruptcy and debt resolution to analyze your particular situation, and advise you as to the best options for your financial circumstances. We can help you through the complex filings of a Chapter 13 bankruptcy, help you obtain credit counseling, and work with your creditors to establish a repayment plan that will put you on the path to financial stability.
If you are considering Chapter 13 bankruptcy, contact the attorneys at Loan Lawyers today to schedule a free consultation to learn more about your rights and options.