Who Is Eligible for Chapter 13?
Chapter 13 is reserved for individuals (and couples), as opposed to corporations and partnerships. Most individuals are eligible as they have received credit counseling, possess a regular income sufficient for living expenses, and their secured debts are less than $1,081,400, with unsecured debts less than $360,475. If you had a bankruptcy petition that was dismissed with prejudice or for abuse in the last half year, you cannot file until the 180-day waiting period has expired.
How Does Chapter 13 Work?
You and your lawyer will file all the necessary paperwork, such as the petition, a statement of financial affairs, the schedules, and your plan of reorganization. You will pay a number of fees and possibly meet with your creditors, but your attorney will handle most details. If you plan to file on your own, you should be aware that the failure rate is very high. Once submitted, your documents will then be reviewed by the chapter 13 trustee and creditors, after which you’ll begin your payment plan.
How Long Does It Take?
Once everything is approved and the process is started, you will pay a certain amount of your income, excluding necessary expenses and exemptions, towards your reorganized plan or debt adjustment. This usually involves 3 to 5 years of structured payments until you fulfill the agreement. Certain remaining debts may be discharged, unless they can’t be, such as student loans.
What Will My Duties Be Under Chapter 13?
- File all required tax returns before your creditor’s meeting
- Send all creditors a notice of your bankruptcy
- Maintain child support and alimony payments during your plan
- Make all payments to the trustee during your adjustment period
- Make all payments for agreed upon secured loans, such as your house and cars
- Meet new tax obligations and not incur significant new debt
- Provide the trustee with annual tax returns and information changes in income
- Get court approval for any new loan, or for buying, selling, or refinancing a home
What Is a Trustee and What Is His Role?
The trustee is a representative of the bankruptcy estate who works for the court and the federal government to review bankruptcy petitions and schedules. He generally handles most of the issues related to the processing and approval of bankruptcy cases. The trustee also acts as the disbursing agent for your payments and provides oversight on issues that might arise.
What Is the Role of My Attorney?
In chapter 13 bankruptcy, your attorney will generally analyze all the particulars of your situation and prepare your estate, allowing you to keep as much of your property as possible. He or she will assemble all your information and data and handle your court paperwork and deadlines. Your attorney will prepare your petitions, schedules, and statements for filing, will draft your plan of reorganization, and help you understand your duties. Attorneys will also meet with your creditors, attend hearings, and address issues with the trustee.
Additionally, attorneys will make necessary petitions and modifications if you need to change your plan. Because they are now more liable for inaccuracies and other problems that could arise in connection with your case, having one means that many of the burdens of filing for bankruptcy are taken off you and become the attorney’s responsibility.
How Does Chapter 13 Affect My Credit Scores?
Chapter 13 bankruptcy will be publicly listed on your credit report for a total of 7 years, during which time your credit score will be negatively affected. However, your score will slowly increase as you establish a positive payment pattern during your adjustment period, and it will continue to increase as long you keep up with your payments.
What Are Exemptions in Chapter 13?
Under chapter 7, every state has a list of exemptions for things that don’t need to be sold to pay back creditors. Usually, there is a monetary limit for each category of property you own, whether it’s your home, your car, or your household possessions. Under chapter 7, your creditors have the right to liquidate assets not protected by this exemptions list. In chapter 13, however, instead of having those items liquidated, you must pay to creditors, as part of your adjustment plan, their full value. To fully understand how exemptions work in your situation and state, it’s helpful to talk to a lawyer.
What If I Am Self Employed or a Business Owner?
If you are self-employed or operate your own business, you must file with the trustee a monthly financial report, or business operating statement, before the 15th day of each month.
What If I Can’t Continue To Make All My Payments?
If a situation arises under chapter 13 in which you’re unable to make all your required monthly payments, you must show that it is the result of a serious income change or a necessary expense. Your lawyer must then file a moratorium with the court and creditors, which is subject to approval by the trustee.