Chapter 13 of the U.S. Bankruptcy Code allows individuals who have regular income to obtain a court-ordered repayment plan for their debts. This plan helps to relieve some of the financial stress caused by overwhelming debt.
If you are struggling to make your housing payments, pay off your credit cards, or cover other bills, you may be considering bankruptcy protection. If so, Chapter 13 bankruptcy may be right for you.
A qualified legal professional can help you decide whether Chapter 13 bankruptcy is the best option for your circumstances and guide you through the process of filing your case with the court.
Chapter 13 Bankruptcy: What Does It Involve?
Chapter 13 is also known as “wage earner” or “reorganization” bankruptcy because it allows individuals to obtain a court-ordered repayment plan for their debts and keep their property by reorganizing their finances. A Chapter 13 plan must be paid back in three to five years, allowing debtors to catch up on past due payments while keeping their assets.
What Kinds of Debts Can Be Handled with Chapter 13?
Chapter 13 bankruptcy protection allows you to pay back your debts over some time. This can work well if you want to keep specific properties, like your home, car, or business.
Debts that can be handled through Chapter 13 bankruptcy include:
Unsecured debt. Unsecured debt includes credit card bills, medical bills, and unsecured personal loans.
Secured debt. Secured debt includes mortgages and vehicle loans where the lender holds collateral as security against the loan in case it is not repaid. Even though this type of debt is secured by collateral, it may still be handled using Chapter 13 bankruptcy by making monthly payments over the allotted period until all debts are paid in full.
In Chapter 13, some debts are not dischargeable. These include:
- Student loans, except in rare circumstances
- Child support or alimony payments
- Any debt for a criminal fine arising out of a crime that you have been convicted of
- Debts arising from property damage or personal injury caused by driving while intoxicated or under the influence of drugs
- Debts arising from willful and malicious injury to another person or their property
What is Involved in the Process of Filing Chapter 13 Bankruptcy?
The first step in filing for bankruptcy is to meet with a bankruptcy attorney to discuss your financial situation and find out if you qualify for chapter 13 bankruptcy. If you do, your attorney will help you prepare the necessary paperwork and file it with the court.
Creditors’ Automatic Stay
An “automatic stay” goes into effect regarding your creditors at the filing date. This means that once you complete your first steps, all collection action against you must stop immediately. Your creditors may not call or harass you about debts owed during this time.
How Do Chapters 7 and 13 Bankruptcy Differ?
The primary difference between these two most common types of bankruptcy is that Chapter 7 wipes out your debt in 90 days, while Chapter 13 involves debt restructuring.
Chapter 7 bankruptcy eliminates most debt and over a period of three to five years, you generally do not lose any property.
Chapter 13 bankruptcy, on the other hand, involves debt restructuring and repayment plans. For a case to be filed under Chapter 13, an individual must prove that they have enough income to repay at least some of their debts over time. The amount of time varies from case to case, up to five years.
Is Chapter 13 Bankruptcy the Same as Debt Settlement?
Chapter 13 Bankruptcy and Debt Settlement are quite different, but both can help you get out of debt.
Debt settlement is a financial strategy in which you negotiate directly with your creditors to lower the total amount owed. While this can lower your total debt, settling with every creditor is not always possible. Some creditors will refuse any kind of settlement and instead force you into bankruptcy court.
Chapter 13 bankruptcy offers a more comprehensive solution to your financial troubles. This method requires payments through a payment plan, and then the remaining debts are discharged. It is designed for people who have made an honest effort to pay their bills but were unable because they couldn’t keep up with increased payments or higher interest rates.
Your skilled bankruptcy attorney can assist you in determining which option is best for you.
Is Chapter 13 Bankruptcy Right for You?
Depending on your situation, Chapter 13 bankruptcy may be the right choice for you. Chapter 13 bankruptcy is a good option if you can pay back some or all of your debt over time but need some breathing room to do so.
When deciding, keep in mind that if you’re able to make a payment plan that covers your obligations within three to five years, Chapter 13 allows you to keep your property and discharge all or part of your debt. This can give you time to catch up on missed payments without losing everything.
Hoverson Law Offices, P.A. Can Help
Chapter 13 bankruptcy can be a beneficial way to get back on your feet after a financial setback.
At Hoverson Law Offices, P.A., we can help determine if Chapter 13 bankruptcy is right for you by evaluating your unique situation and providing personalized counsel. At our firm, we treat each client as an individual with unique needs and goals rather than as just another case number. Our team of knowledgeable legal professionals will work with you every step of the way to make sure that your case gets completed as efficiently as possible.
Michael K. Hoverson has over 35 years of experience helping people get back on their feet after financial challenges.