Declaring bankruptcy means getting quite familiar with a mountain of paperwork, and there are two different options for bankruptcy that you might need to consider: chapter 7 bankruptcy or chapter 13 bankruptcy.
The simplest way to understand the difference between these two options is that chapter 7 bankruptcy sells your assets to cover your debts (with some assets exempt from sale), and chapter 13 bankruptcy creates a payment plan that satisfies the demands of the creditors.
Chapter 13 bankruptcy is sometimes called a “wage earner’s plan” because individuals and families who file for this type of bankruptcy must have a job that will allow for bankruptcy payments and enough money left over for necessities.
Did You Know? Chapter 13 bankruptcy may result in the payment of part or all of a person’s debts.
Are There Advantages to Filing for Chapter 13 Bankruptcy?
One of the most common reasons a family or individual will consider chapter 13 bankruptcy is because of the chance to sell a home from foreclosure. Filing stops a foreclosure proceeding and may allow the homeowner to exit bankruptcy with a clean slate where there are no delinquent payments associated with the mortgage.
However, after the payment plan is arranged, it’s up to the debtor to keep up with the payments to keep his or her home, as well as to satisfy the terms of the bankruptcy agreement and reach a successful chapter 13 discharge at the conclusion of the payment schedule.
Other advantages of Chapter 13 include:
- Individuals may reschedule secured debts to lower monthly payments.
- Chapter 13 protects co-signers on certain debts.
- Only one, single monthly payment is required, which is sent to the trustee.
- The debtor doesn’t need to have any contact with debtors.
Chapter 13 bankruptcy might not be the answer for every person who decides to file, but it’s definitely something to consider for anyone who owns a home and wants to save it from foreclosure.
Understanding Eligibility for Chapter 13 Bankruptcy
Filing for bankruptcy isn’t an automatic process where you file some paperwork and wait a few months for your debts to disappear. The court must approve your bankruptcy application, and approval depends on a variety of factors. Additionally, the court may recommend that you file chapter 13 bankruptcy instead of chapter 7 if your circumstances warrant it.
The federal government shares:
“Any individual, even if self-employed or operating an unincorporated business, is eligible for chapter 13 relief as long as the individual’s unsecured debts are less than $383,175, and secured debts are less than $1,149,525.”
The government will adjust this amount occasionally to reflect current economic conditions and will use the consumer price index to make changes. If the debtor has had a bankruptcy petition dismissed in the past 180 days for a variety of reasons, the court may also reject the application. For example, a debtor risks rejection if a bankruptcy petition was dismissed because of a “willful failure to appear” before the court.
What Happens During Chapter 13 Bankruptcy?
One of the most notable parts of chapter 13 bankruptcy is the significant amount of paperwork involved in the process. It’s essential for the debtor to ensure timely submission of all requested documents, as well as accuracy when submitting those documents. Four of the essential documents or packets that must be filed with the court include:
- Listing of assets and liabilities.
- Evidence of current income and expenditures.
- List of unexpired leases and “executor contracts”.
- Official statement of financial affairs.
Additionally, the debtor must undertake credit counseling and create a number of documents after completing counseling. Some of those documents include a debt repayment plan and a statement of net monthly income. Evidence of payments from employers and anticipated increases in income or expenditures must accompany the statement. Other documents required include recent tax returns.
Filing for bankruptcy may be accomplished individually or as a couple, but the financial details of a debtor’s spouse must be included in the detailed list of expenses and income, even if the spouse isn’t filing for bankruptcy. The court will make a determination on the required monthly payment by using the entirety of the household’s income.
The Bankruptcy Trustee and the Payment Plan
After the court appoints a bankruptcy trustee, a meeting will occur between the trustee and the debtor’s creditors. Filing bankruptcy places a “stay” on collection activity, which means the collection agencies, banks, and other creditors can’t continue their collection activity and must wait for a meeting with the bankruptcy trustee.
Fourteen days after the bankruptcy petition is filed, the debtor must submit a repayment plan to the court. The payments will usually occur on a biweekly or monthly basis and remain constant for the life of the repayment plan. Upon receiving each payment, the bankruptcy trustee will distribute the payments accordingly, based on the level of each creditor’s claim.
What if the Court Rejects the Payment Plan?
If the court decides to reject the payment plan, the debtor does have a few alternatives available. For example, the debtor may file a modified plan or convert the case to a chapter 7 bankruptcy (liquidation).
If everything goes smoothly and the court accepts the payment plan, the debtor must make payments for the length of the agreement and complete the plan in full.
In additional advice, the federal government recommends that debtors seek the assistance of a lawyer:
“The bankruptcy law regarding the scope of the chapter 13 discharge is complex and has recently undergone major changes. Therefore, debtors should consult competent legal counsel prior to filing regarding the scope of the chapter 13 discharge.”
Get Legal Assistance for Harassment from Debt Collectors
Are you thinking about filing for bankruptcy? Do you want to know more about the difference between chapter 13 bankruptcy and chapter 7 bankruptcy? Would you like to know how the law team at Suburban Legal Group PC can help? Request a Free No Obligation Legal Evaluation today, and we’ll let you know your options and how to stop the harassment.
DISCLAIMER: All information on this website is provided for informational purposes only and are not intended to be construed as legal advice. Suburban Legal Group PC shall not be liable for any errors or inaccuracies contained herein, or any actions taken in reliance thereon.