Declaring bankruptcy can be a very frightening thought, but it can also provide significant benefits to those who need it most. Instead of continuing to pile on debt, those with financial turbulence get a chance to have some of the debt forgiven.
Here are ten things you should know about chapter 13 bankruptcy:
#1 – Chapter 13 bankruptcy is also referred to as a wage earner’s plan.
The reason it’s called a wage earner’s plan is that it allows people with regular income to create a plan to pay back all or a portion of their outstanding payments. When chapter 13 bankruptcy is filed, the debtors will propose a repayment schedule in order to make installment payments to creditors within a three to five-year period.
#2 – The payback period will depend on the debtor’s income level.
If the debtor’s current monthly wages don’t meet the appropriate state median, then the plan must be for three years unless the court decides to approve a longer period “for cause.” If the debtor’s current monthly wages are more than the appropriate state median, the plan is typically for five years.
Five years is the maximum amount of time that the courts will allow for repayment. There are no exceptions to this rule.
Creditors are disallowed from starting or continuing to collect payments during the repayment period.
#3 – Chapter 13 bankruptcy may allow debtors to save their homes from foreclosure.
Under chapter 13, individuals can halt foreclosure proceedings and have the opportunity to eliminate delinquent mortgage payments over time. However, all mortgage payments made under the bankruptcy plan must be made before their respective due dates.
#4 – Chapter 13 permits debtors to reschedule secured debts.
Other than a mortgage for the primary residence, debtors have the opportunity to extend secured debts throughout the span of the chapter 13 plan. Doing so can help reduce the payment amounts.
#5 – Chapter 13 has a special provision protecting third parties who are liable with the debtor on “consumer debts.”
Essentially, this provision aims to help protect co-signers from consumer debt repayments. Only the individual who incurred the debt will be required to make payments toward the plan.
#6 – Chapter 13 operates similarly to a consolidation loan.
The way in which Chapter 13 is similar to a consolidation loan is that the individual debtor provides the plan payments to a chapter 13 trustee who is to distribute the funds to the creditors. Debtors won’t have any direct contact with creditors.
#7 – Any individual can be eligible for chapter 13 bankruptcy.
All individuals, including those who are self-employed or operating an unincorporated business, are eligible to file for chapter 13 bankruptcy so long as:
- Their unsecured debts do not exceed $394,725, and
- Their secured debts do not exceed $1,184,200.
Keep in mind that these amounts change periodically in order to mimic changes in the consumer price index.
Corporations and partnerships may not file for chapter 13 bankruptcy.
#8 – Several pieces of information are used to file for chapter 13 bankruptcy.
To complete the Official Bankruptcy Forms that comprise the petition, statement of financial affairs, and schedules, the debtor will need the following information:
- A list of all creditors and the amounts and nature of their claims;
- The source, amount, and frequency of the debtor’s income;
- A list of all of the debtor’s property, and
- A detailed list of the debtor’s monthly living expenses (such as food, clothing, shelter, utilities, taxes, transportation, medicine, etc.)
#9 – The debtor’s spouse’s information will also be used.
The aforementioned pieces of information will also need to be gathered for the debtor’s spouse—regardless of whether a joint petition is filed, separate individual petitions are filed, or even if just one spouse is filing.
If only one spouse files, the income, and expenses of the non-filing spouse are needed for the court, trustee, and creditors to evaluate the household’s economic standing.
#10 – Chapter 13 contains a special automatic stay provision.
The special automatic stay provision protects co-debtors. As long as the bankruptcy court doesn’t ratify otherwise, the creditor cannot attempt to collect a “consumer debt” from someone who is liable besides the debtor.
Consumer debts are sustained by an individual mainly for personal, family, or household reasons.
If You Need Us, We’re Here to Help
Our team here at The Gil Law Firm has successfully represented more than 6,000 bankruptcy clients, and we’re prepared to help you, too. Don’t hesitate to reach out to our office with any questions you may have.