by Tanya Davis
Bankruptcy is a federal process that was developed in order to give relief to people who have gotten deeply into debt. People fall into too much debt for many reasons. Some of these reasons are: divorce, illness, medical bills, and job loss. Some people are simply poor money managers. Some have inadvertently run up credit card bills to a point where they can no longer pay. When this happens, the court offers a way out through filing for bankruptcy –either chapter 7, 11, 13, or 12.
Chapter 13: A Plan to Restructure
The U.S. Bankruptcy Court allows for chapter 13 debt relief as a way to help people get out from under exorbitant debt. Chapter 13 may be filed by an individual, sole proprietor, or any unincorporated business. Unlike chapter 7, you do not have to sell off everything that you own. Chapter 13 allows you to adjust your personal debt without simply giving up and walking away from it. Sometimes referred to as the “wage earner's plan,” it is a way for employed persons to create a repayment plan for all or part of their debt. The debtor simply proposes a repayment plan that features installment payments to creditors over three to five years' time.
.If your monthly income is greater than the median income in your state, the plan may be implemented over five years, but no longer. During that period of time, the law will not allow creditors to pursue, harass, or make demands on you. Taking a chapter 13 bankruptcy is sort of like taking out a consolidation loan, with you paying the trustee and the trustee paying your creditors.
Chapter 13 is the preferred type of bankruptcy by many consumers because they can keep their home. Even if the mortgage payments have fallen behind, a person who has filed Chapter 13 bankruptcy may pay incrementally until they catch up. However, while catching up delinquent payments, they still are expected to make all the payments that come due during the plan on time. Chapter 13 also allows you to reschedule secured debts, which can lower your payments. If a third party has become involved in your debt, like a family member who co-signed on a loan, Chapter 13 offers protection to them.
Are you Eligible?
In order to file a chapter 13 bankruptcy, you may be an individual, and may be a self-employed person (whether or not your business is incorporated). Your total unsecured debt must be less than $307,675 and your secured debt must be less than $922,975. (This amount fluctuates based on the consumer price index, so check with the U.S. Bankruptcy Court link http://www.uscourts.gov/bankruptcycourts.html to be sure this number is still current). The only way you would be rejected from filing under chapter 13 (or any other chapter) is if, during the past 180 days, the court had to dismiss a prior bankruptcy petition on your behalf because you did not comply with their order.
The law says that you must have received credit counseling from a court-approved credit counseling agency within the 180 days prior to filling your petition. Sometimes this counseling helps you create a debt management plan; if so, that plan must be filed along with your petition.
To file the petition, visit the bankruptcy court in your jurisdiction. Along with the petition and the certificate of credit counseling, you must file:
- A schedule of assets and liabilities
- A schedule of income and expenses
- A schedule of contracts and leases, if any
- A statement of financial affairs
When filing the petition, you normally pay your fees up front: $235 to file the case and $39 for miscellaneous administrative fees. If you cannot afford the fees up front, the court may grant you permission to pay them in installments.
During the Bankruptcy
After you have filed the petition, the court grants an automatic stay to prevent creditors from taking further action against your property. A trustee will be appointed to evaluate the case, collect your payments, and distribute them to creditors. Within the 4 to 6 weeks after you have filed the petition, the trustee will hold a meeting of creditors. This is a chance for you to face your creditors and answer their questions about your debt. Usually this meeting leads to an agreement about your payment plan.
After the court approves your plan, you simply continue to make payments as scheduled. At the end of the term, the court will determine whether you have met all your obligations, then discharge you from all remaining debt. If a creditor was only partially paid under the plan, they still cannot pursue legal action against you following the discharge. However, if you owed debts like alimony, child support, taxes, guaranteed student loans, or a few other specific obligations, Chapter 13 bankruptcy will not remove your responsibility to pay those.
After Chapter 13
There is life after bankruptcy. Although filing for Chapter 13 means that you have a mark on your credit record for the next 7 to 10 years, most people find they are able to obtain credit in only a year or two. Bankruptcy law is complex; so please be sure to consult with an attorney before attempting to file for bankruptcy.
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