The two most common types of bankruptcy are Chapter 7 and Chapter 13. While Chapter 7 is often favored because of its relative speed (4-5 months), some individuals may not be eligible for Chapter 7 either because they failed the means test or because Chapter 7 may not be the best option for their situation. In these cases, Chapter 13 may be a viable alternative. To determine what is best for you and your family, please contact us for your FREE consultation.
Chapter 7 is a liquidation bankruptcy, where your non-exempt property is sold to pay off creditors (most clients do not have much if any non-exempt property). Chapter 13 is a reorganization bankruptcy. If you have enough disposable income to pay your creditors, you can have your debt reorganized under Chapter 13 to make it easier for you to pay those debts under a repayment plan and you keep all your property.
Chapter 13 Bankruptcy may help lift the burden of overwhelming debt through reorganization and can help you manage your debt. Chapter 13 debt repayment plans are typically three to five years long, which means you will have to make monthly payments over the duration of your plan. Unlike Chapter 7, Chapter 13 will make it easier for you to pay your debt, but it will not eliminate your unsecured debt until you complete your plan. You may be eligible for Chapter 13 if you do not pass the means test for Chapter 7. However, there are limits on how much debt you can have to file for Chapter 13 protection. The limits are adjusted periodically.
To start the Chapter 13 filing process, you must file a petition with the local bankruptcy court. The petition should include a copy of your debt repayment plan and schedules that list your current income, expenses, assets, and liabilities. The plan must identify: Priority claims, such as alimony, IRS claims, and bankruptcy costs; Secured claims, such as your home, car, or other property that a creditor can take back as collateral if you do not pay the debt; Unsecured claims, which are claims in which the creditor has no security interest, such as credit card debt, medical bills, utility bills, collection judgments, etc.
You can keep the property covered by secured claims if you make the payments under the repayment plan. This is particularly important if you wish to stop foreclosure on your home or repossession of your car.
The repayment plan will be reviewed by your trustee and any creditors at a meeting known as a 341 meeting, and it will be confirmed at a later hearing. Once the repayment plan is approved, the trustee in your case will collect payments and pay your creditors. After you have made your payments, the court will discharge any remaining dischargeable debt.
Chapter 13 Bankruptcy has several advantages, including: Retention of exempt and non-exempt property, so long as you make your payments; Immediate protection from lawsuits, collections, and wage garnishment; Foreclosure protection if you meet the terms of your plan; One of the main disadvantages to Chapter 13 is it is a longer process.
If you are behind on your car loan or lease and you file for Chapter 13 bankruptcy, you can keep your car if you pay the arrearage (the amount you're behind) through your repayment plan, or if your car loan is much higher than the car’s value the loan amount can be reduced through the Chapter 13 Plan. However, once either is done you must continue to make your regular car payments.
If you’re worried about protecting your house, unlike Chapter 7, Chapter 13 offers ways to keep it. But you’ll have to demonstrate that you have enough income to: afford to continue making the mortgage payment; catch up on your mortgage arrears during your Chapter 13 Plan (3-5 years) and pay your creditors any other required Chapter 13 payment amounts.
The federal government does not require a person to have a minimum amount of debt to file for bankruptcy. However, the absolute best way to determine what is best for your personal situation is by contacting us for a FREE consultation which can be done by Zoom, telephone or in person.
Filing for bankruptcy depends on MANY factors, which we will carefully review and discuss with you during your FREE consultation.