Chapter 13 Bankruptcy
A chapter 13 bankruptcy is also called a wage-earners plan, or reorganization. A Chapter 13 is used where you need to stop a foreclosure, reinstate a driver’s license, or earn too much money to qualify for a Chapter 7 bankruptcy. Perhaps you want to make your best efforts to pay off your creditors. A Chapter 13 bankruptcy may be for you.
Chapter 13 is much more complicated than a Chapter 7. In order to enter a Chapter 13 bankruptcy, you have to propose a plan to the Court that states how you are going to reorganize your finances. If the Court believes you can make the plan work, and you have proposed the plan in good faith, the plan will be confirmed and your bankruptcy will be mostly complete.
The critical issue to the Chapter 13 plan is that a payment must be made. You will make your first plan payment within 30 days of filing the plan. The monthly payment is critical to a Chapter 13 plan. In order to reorganize you contribute any existing disposable income to the plan which is then distributed by the Chapter 13 trustee to the creditors.
Disposable income is defined as money which is available after all the base expenses have been paid.
What are the advantages of a Chapter 13 Bankruptcy
We compare Chapter 13 to Consumer Credit Counseling on steroids. Chapter 13 is one of the best financial tools available to prevent serious financial trouble before it starts. With a Chapter 13, it is possible to strip away debt that cannot be sustained, lower car payments, adjust interest rates on debt you choose to keep, and payoff other debt entirely.
Chapter 13 lets you rearrange your finances, repay a portion of your debts and put yourself back on your financial feet. The plan will last from three to five years. It takes time, but it can be an extremely successful way to alter your financial course and get back on track.
Just how powerful a tool is Chapter 13 bankruptcy?
Extremely, you can use it to stop a house foreclosure, catch up on mortgage payments. You can actually lower your car payment and pay it off over the course of the plan. You can payoff your back taxes and stop interest from accruing on your debts.
The filing of the bankruptcy automatically stops all creditors in their tracks. This is because from the moment you file, the court extends its arms around you and protects your creditors. This protection is called the ‘automatic stay.’ Creditors cannot legally garnish your wages or your bank account. They cannot repossess your car, house, or other property. They cannot cut off your utility service or welfare benefits.
If you car has been repossessed, the filing of a Chapter 13 within 10 days will get the car back from the repo man.
Chapter 13 can be used to buy necessary time. Perhaps you know you can’t catch up your mortgage payments, but you need some time to sell your home. Chapter 13 can be a good way to buy the necessary time.
What are the disadvantages of Chapter 13 bankruptcy?
Chapter 13 requires a commitment for between three and five years. Each month you will have to make a payment to the Chapter 13 trustee. It’s a big commitment. It requires steady and stable income. If you are unemployed, chances are it will be difficult to fund a plan. The biggest reason plans fail is because debtors fail to make their Chapter 13 payments. When you have the Law Offices of William D. Ledger to represent you, we endeavor to make sure that the plan payment is something you can afford. If a plan is not feasible, we will recommend another course of action prior to the filing.
What about my credit?
The Fair Credit Reporting Act does allow for the Chapter 13 bankruptcy to be reported for up to ten years, however, most credit bureaus have a policy of taking Chapter 13 bankruptcy off in seven years. Now, this does not mean you are in credit purgatory for seven to ten years. Far from it.
As soon as your plan has confirmed, you are going to start rebuilding your credit. It will be slow at first and the success of the reorganization plan should be a priority. When the plan has successfully completed and your case is discharged, that is when the credit rebuilding process truly begins. It will take about two years to get back on top of your credit score, but that is still a lot shorter than ten years.
3-5 years sounds like a long time. Are there any quick fixes?
The lottery would be a quick fix, but we don’t see that as a realistic possibility. People who guarantee you an overnight solution or anything else are trying to take your money for their own benefit, not yours.
Reorganization takes time and it takes time for a reason. In order to ensure your success, you have to be given enough time to work your debts out without being hit too hard in the pocketbook. We create plans for your that are manageable and successful.
We know that three years does seem like a long time. But consider where you were three years ago and it probably seems like those three years flew by. The same will be true with the next three years.
Chapter 13 can be used to buy necessary time. Perhaps you know you can’t catch up your mortgage payments, but you need some time to sell your home. Chapter 13 can be a good way to buy the necessary time.
Who can file for Chapter 13 bankruptcy?
Let’s change the question and ask - “Who can’t file for a Chapter 13 Bankruptcy?” Businesses cannot file for a 13 bankruptcy. If you own a business, you can file as an individual and include your business related debts. Everyone else can file for a Chapter 13 bankruptcy so long as your secured debts do not exceed $807,750.00 and your unsecured debts do not exceed $269,250.00
In order to file, you need to have a stable source of regular income. The money does not necessarily have to come from employment. It can be penson plan payments, social security, disability payments, unemployment benefits, child support or maintenance, royalties and rents, gifts of money from friends or family, and proceeds from selling property.
Once you have the money source, you have to have enough to fund the plan, this means you must have disposable income. It is your disposable income which will fund the plan.
How do I know if I should file for a Chapter 7 or 13?
The Law Offices of William D. Ledger will be able to provide you with an proper analysis when we actually meet with you. Until then, you can consult our table comparing Chapter 7 and Chapter 13 and review the rest of this answer. You can also start by using our 5 minutes analysis program.
You are probably a good candidate for a Chapter 13 if:
***you are behind on your mortgage payments or car loan, and want to make up the missed payments over time.
****you have taxes which are unpaid and are non-dischargeable.
***you want to discharge certain debts in a Chapter 13 which are considered non-dischargeable in a Chapter 7. Also known as a super discharge.
***you really want to pay off your debts, but simply cannot do it without the protection of the bankruptcy court.