When monthly bills become overwhelming, many people consider bankruptcy as a way to take control of debt. Some of them are disappointed to learn that they don’t qualify to wipe out their debt entirely, but there are additional options under Chapter 13 of the US Bankruptcy Code. Through the process, you pay your creditors over time at an amount you can afford. You can emerge from the proceedings in a more favorable financial condition, without the burden of crushing debt. However, bankruptcy isn’t the right move for everyone. It’s important to consult with a Cleveland Chapter 13 bankruptcy lawyer about the pros and cons that apply to your specific situation.
Our team at Luftman, Heck & Associates has in-depth knowledge of the relevant laws, so we can explain Chapter 13 and guide you in making informed choices about your future. We’re also at your side to help navigate the complex, highly technical process. To learn more about your options, please call (216) 586-6600 to schedule a consultation with a Chapter 13 bankruptcy lawyer.
Summary of Chapter 13 Bankruptcy Proceedings
Chapter 13 of the US Bankruptcy Code is officially termed an “adjustment of debt” for people who earn a regular income, allowing them to reorganize their bills so they’re able to pay back creditors. Depending on your circumstances, you could arrange a repayment plan that gives you three to five years to resolve debt. Chapter 13 imposes an automatic stay on collection efforts by creditors, and it suspends any proceedings involving foreclosure on your home. At the end of your debt repayment plan, any unsecured debt that remains will be discharged.
If your primary concern is creditor demands instead of a lack of income to pay your bills, Chapter 13 bankruptcy may be right for you. The eligibility rules are strict, but more individuals will qualify as compared to Chapter 7 liquidation bankruptcy. When you make above a certain amount of disposable income per month, you cannot eliminate your debt through Chapter 7. In addition, you should note that Chapter 13 doesn’t absolve you from all types of debt. You cannot discharge:
- Court-ordered child support and alimony;
- Fines and penalties incurred as a sanction, such as traffic tickets and restitution to victims of a crime;
- Student loans from the federal government and private sources; and,
- Income taxes.
Pros and Cons of Chapter 13
Just as with other forms of bankruptcy, there are positive and negative implications for Chapter 13. On the pro side, filing your petition puts an end to creditor collection efforts, including calls, wage garnishment, and lawsuits. You can also protect your assets from foreclosure and repossession, unlike Chapter 7 where they may be sold off to pay your debts. You’re able to keep your home as long as you pay your mortgage as designated by the repayment plan. Plus, having a Chapter 13 bankruptcy on your credit report may be viewed as less extreme than Chapter 7 by future lenders.
On the other hand, there are certain drawbacks to filing Chapter 13. For instance:
- You cannot discharge the debts listed above;
- Chapter 13 bankruptcy will remain on your credit report for several years;
- The process takes longer than Chapter 7, since your bankruptcy case remains open until you complete your debt reorganization plan; and,
- All new mortgage payments under the Chapter 13 repayment plan must be on time. If you fail to comply with the legal requirements, your bankruptcy case may be dismissed. Creditors can reinstate foreclosure, repossession, lawsuits, wage garnishment, and other collection efforts.
A Chapter 13 bankruptcy lawyer can assist as you weigh these pros and cons, as well as additional factors that affect your decision on debt reduction.
Qualifying for Chapter 13 Bankruptcy
The main eligibility rule for Chapter 13 reorganization involves your income. If you have enough disposable income to pay down your debt over three to five years, it’s likely that you’ll qualify. Other requirements include:
- You must be an individual, as opposed to a business.
- You must be current on state and federal taxes, with submit proof that you’ve filed for four years prior to filing your Chapter 13 petition.
- You cannot have more than a designated amount in unsecured debt, which includes credit cards, unpaid medical bills, lines of credit, and other personal loans.
- You can’t have above a certain amount of secured debt, such as mortgages and auto loans.
Note that the numbers for unsecured and secured debt are subject to periodic changes to reflect the consumer price index.
Timeline of the Chapter 13 Bankruptcy Process
You can rely on a Chapter 13 bankruptcy lawyer to handle most of the legal tasks and issues during the process. Your input and involvement are necessary in some areas, however, so it’s important to review a timeline of how the proceedings work.
Within 180 days prior to filing your petition, you must participate in a credit counseling course through an agency approved by the bankruptcy court. The point is to see whether you can reduce your debt without going through Chapter 13. At the conclusion of the counseling session, you’ll receive a certificate of completion to include with your bankruptcy documentation.
Upon Your Filing Date
The primary form to initiate Chapter 13 is the Voluntary Petition for Individuals Filing for Bankruptcy, where you’ll include your basic identifying information. In addition, you must attach supporting documents regarding your financial situation, such as:
- Your property, including real estate, vehicles, personal belongings, household items, and bank accounts;
- Your income from all sources;
- Monthly expenses;
- All secured and unsecured debts;
- Exempt property, which you’re allowed to keep under federal and state exemption laws; and,
- Many other details required by the bankruptcy forms and rules.
Plus, you must include the key document for a Chapter 13 case: Your proposed repayment plan to resolve your debt. There’s no form for this document, but it’s essential that your paperwork meet all legal requirements.
After you file, a trustee will be appointed to oversee the Chapter 13 bankruptcy process. This individual will be in charge of dealing with creditors, reviewing your documentation, and assessing your proposed repayment plan. Note that you must start making payments according to your plan within 30 days after filing.
Working with Creditors
The trustee will send notices to your creditors regarding your Chapter 13 case, at which point they can accept your plan or file objections. There will be a meeting of creditors within 40 days after you initiate bankruptcy proceedings, where you, your attorney, and the trustee will also be present. Creditors and the trustee are allowed ask you questions about the information you provided with your petition.
If your plan is approved, you’ll continue making the payments you began 30 days after filing. Your Chapter 13 case concludes when you’ve met all your legal obligations under the repayment plan.