Chapter 13 Bankruptcy
Chapter 13 bankruptcy can be a good debt relief option for people who have a steady income but just can’t keep up with their monthly bills. Also referred to as a wage earner plan, Chapter 13 is a type of debt reorganization that allows you to repay your debt over a three- to five-year period according to a court-approved repayment plan, often at more favorable rates and a lower principal designed to fit into your budget.
Proper filing of a Chapter 13 petition can be complicated, and the assistance of an experienced Charleston bankruptcy attorney can help to ensure that the entire process goes smoothly. At the Steadman Law Firm, P.A., we will work with you to gather all the appropriate information and complete all the necessary forms for the petition, and to help you devise a preliminary repayment plan.
Advantages of Chapter 13 Bankruptcy
There are some distinct advantages to filing for Chapter 13 bankruptcy. Unlike Chapter 7 bankruptcy, you do not risk losing any of your property in a Chapter 13 filing. In addition, filing for bankruptcy under any chapter creates an automatic stay against any further collection activity from your creditors. This means that you won’t receive any more harassing phone calls or letters and any foreclosure or repossession action will be ordered to stop immediately upon filing of the case. By closely reviewing our clients’ unique situations, our bankruptcy attorneys can help you in your case.
Eligibility for Chapter 13 Bankruptcy
Chapter 13 has specific eligibility requirements. These are different from Chapter 7. In Chapter 7, the eligibility requirements are defined by how much you make. Chapter 13 eligibility requirements are defined by how much you owe and whether or not you can pay your debts back.
- Limits on the amount of debt you owe. While each year the exact number changes, adjusted for inflation, through 2019 the amount of money you have in secured debts cannot exceed $394,725. Your unsecured debts cannot exceed $1,184,200. These numbers will go up again in 2020.
- Proof of steady income. Since Chapter 13 bankruptcy reorganizes your debt into a payment plan, you must be able to show that you can, in fact, make payments. Your lawyer will help identify your income, expenses, and will submit a repayment plan to the court. Your creditors will have a chance to look over the plan and either accept or reject it. If your income is not enough to meet the obligations of the repayment plan, the court will reject your offer.
It is also worth noting that only individuals or married couples filing jointly can apply for Chapter 13 bankruptcy. Businesses cannot.
Fees Associated with Chapter 13 Bankruptcy
Perhaps not quite ironically, there are fees associated with the cost of filing for Chapter 13 bankruptcy. In addition, debtors are obliged to take “classes” and present certificates of completion to the court.
The first class you take is on credit counseling. The class helps you determine whether or not you have sufficient income to pay your creditors. There is a second “debtor education” class that you’ll need to take. These classes will cost around $35 a piece. In dire circumstances, these costs can be waived but Chapter 13 filers seldom qualify for the waiver.
Filing a Chapter 13 Bankruptcy Repayment Plan
You or your lawyer will need to present a repayment plan to your creditors and the court. The creditors and the bankruptcy trustee, who represents the court in these matters, will have a chance to object to your repayment plan. If you (or your lawyer) can tweak the numbers and satisfy everyone, the court will confirm your plan at the confirmation hearing.
Debts Repaid in Chapter 13 Bankruptcy
Priority debts consist of things like back taxes, child support payments, and alimony payments that are in arrears. Any repayment plan you offer to the court must include a plan to repay these debts in full.
Secured debts are those backed by property. Those interested in keeping their home or car will need to continue to make payments on their car loan or mortgage.
Unsecured debts are those that are not backed by property. These can include credit card debt and medical expenses. Whatever disposable income you have left over, minus your bills and basic living expenses will go toward these debts. In most cases, these debts do not have to be paid in full or even at all. You do, however, need to show that what disposable income you have is going to the repayment of these debts.
The repayment plan is generally executed over 5 years. Those who qualify for Chapter 7 but choose Chapter 13 instead can qualify for a 3-year plan. On the other hand, those with a lot of priority debt may opt out of a 3-year plan given that their monthly payments are likely to be much higher. Opting for a 5-year plan also increases the likelihood that creditors and the court will accept your repayment plan.
You must be able to prove that you can pay your priority and secured debts in full with the income you currently have. In addition, you may be able to convert your Chapter 13 bankruptcy to a Chapter 7 and discharge the remainder of your debt that way. You will, however, expose your non-exempt assets to your creditors.
One final option at your disposal is to opt out of the bankruptcy. As soon as you do, however, your creditors can begin harassing you once again.
What Happens If I Can’t Make Payments?
A lot can happen over the course of 5 years. You can fall ill. Your job could downsize. Your hours at work may be reduced. That doesn’t necessarily mean that you’re out of the plan or you’re found in default of your Chapter 13 bankruptcy obligations. In many cases, you’ll be able to modify the plan. This includes reducing the amount paid to unsecured debts.
If you fall ill or there is some other hardship, the court may agree to discharge your debt entirely.
After Chapter 13 Bankruptcy
If you have made your payments over the past 5 years and taken the course on managing your finances, you will need to show the court that you are current on priority debts. That includes taxes and child support as well as alimony.
If you meet all these requirements, the remainder of your unsecured debt can be discharged entirely.
Alternatives to Chapter 13 Bankruptcy
There is only one reasonable alternative to Chapter 13 and that is debt consolidation. For those who make too much money for Chapter 7 but have too much debt for Chapter 13, one other possibility is Chapter 11.
For those who aren’t sure whether or not declaring bankruptcy is the right option for them and can afford to make payments, a debt consolidator will purchase all of their debt and guarantee them a fixed interest rate. You will, of course, have to prove that you can repay the debt, but you won’t have a bankruptcy on your credit report.
A 40-Year Experienced Charleston Bankruptcy Attorney Leading The Way
Our firm’s founding attorney, Richard A. Steadman Jr., has been practicing law for more than 40 years. We are proud of our reputation for providing personalized service to every client. We will take the time to fully understand your needs and goals before we recommend a specific debt relief solution. We’re standing by to represent you and we guaranteed to have both the training and experience to be able to handle your case. We pride ourselves in being the go-to representatives for a wide variety of Charleston bankruptcy lawsuits.