There is a lot to consider when you are unable to pay your debts and stand to lose everything to creditors. Your house, car, assets and families are on the line here and you need to find the best possible solution to a very bad situation. Chapter 13 bankruptcy is one option. But, shouldn’t you know all the facts about the program before you dive headlong into the plan. Here are five questions you are itching to ask, and we’re itching to answer for you.
What Is Chapter 13 Bankruptcy?
- What it is: Chapter 13 is essentially a repayment plan that is protected by the law. This means that your repayment is overlooked by the law, specifically a court appointed trustee. So, while you are protected by the law from creditors who want to repossess your assets, you are also a participant in a closely monitored repayment plan.
- How it works: Well, if you have a regular income but are unable to repay your debts, chapter 13 can help determine how much you can pay your creditors depending on your income. You may lose some of your debt entirely, while you will be forced to pay some others. Once it’s determined what you owe, a written plan outlining your repayment is made and a trustee is assigned to make sure you repay your debt along and to distribute your payment to your various creditors.
Am I Eligible To Apply For Chapter 13 Bankruptcy?
There are a few basic conditions you have to fulfill to be eligible for chapter 13 bankruptcy. Here they are:
- You must reside in the United States and have a residence or business within the United States
- You must have a regular income from a job or a business, commissions or pension income
- You cannot have any dismissed bankruptcy cases in the last 180 days
- You must have gone through a credit counselling program before you can file bankruptcy within the last 180 days
- You owe less than $360, 475 in unsecured debt (like credit cards and unpaid bills) and less than $1, 081, 400 in secure debt (like mortgages and car loans)- these numbers are constantly updated so check to see what the number is when you apply.
- You must have filed taxes consistently in the past- specifically filed annual tax filings in the past four years.
How Long Does Chapter 13 Bankruptcy Take To Complete?
- The Application: Along with a court fee (around $300) and a completed application outlining your assets and debts, you start with filing your application in the bankruptcy court in your area. You can file as individuals or as a couple, depending on what your credit counsellor suggests. This is followed by a filing of a repayment plan within fifteen days and a meeting with creditors within fifty days of the filing of the application. The debt repayment plan should be developed through credit counseling in conjunction with credit counsellors and lawyers. So, the application process can be confirmed within sixty days of application.
- The Repayment: Once your repayment plan has been confirmed, you have thirty days to start making payments. Depending on how much you owe and the payments you are able to make, completion of the repayment plan can take anywhere from thirty six to sixty months to repay all your debt. But, you are obligated to make payments on time- perhaps via payroll deductions. If you do not make on time payments or ignore social obligations like child support, a judge can dismiss your case and force you into liquidating your assets under chapter 7 bankruptcy.
What Happens To My Property And My Creditors In Chapter 13 Bankruptcy?
- My creditors: Once you file an application for bankruptcy, your creditors are obligated to stop all proceedings against you. This includes lawsuits, repayment calls and repossessions.
- My property: As creditors are obligated to stop all actions against you, your assets could be protected. You can save your home from foreclosure and protect your co-signers, like your spouse. Herein lays the advantage- if you filed a chapter 7 bankruptcy, your assets could be liquidated to pay off your creditors. With secure credit like car loans, you can reorganize your payments so that you gain time while also potentially lowering your payments.
How Will My Future Credit Be Affected By Chapter 13 Bankruptcy?
Obviously, if you have to file for bankruptcy your credit rating has already taken a big hit. The bankruptcy remains on your credit record for 10 years and in that time you are viewed as a high risk individual to give credit to by banks and financial institutions. Your credit rating may need some dedicated rebuilding after bankruptcy. Good thing about bankruptcy remaining on your credit record for 10 years is that you have time to rebuild your credit by paying bills on time and it gets even better as you can’t accrue any new debt.
Now that you know all there is to know about chapter 13 bankruptcy, you’re ready to make an educated decision and there is absolutely nothing better than an educated consumer.