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 2020 the amount of money you have in secured debts cannot exceed $119,275. Your unsecured debts cannot exceed $1,257,850. These numbers will adjust every 3 years.
- 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.
Attorneys Fees Associated with Chapter 13 Bankruptcy
Attorney fees for Chapter 13 are typically higher than Chapter 7 because it is more complex and lasts 3 to 5 years. Most Debtors are only required to pay a retainer up front with the balance of fees paid through their Chapter 13 Plan, making it easier to get filed.
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. You may keep your home and car. If you are not current on your home, your house payment and its past due payment will be paid in your plan.
Typically your car payment will also be included and sometimes the balance due and interest rate may be reduced.
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. 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 chapter 13 plan payment with the income you currently have.
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 or skipping some payments.
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.
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.