Chapter 13 bankruptcy is a repayment plan that usually takes 3 to 5 years. It is overseen by the Bankruptcy Court to make sure everyone (creditors and the debtor) play by the rules, and it allows you to pay your creditors back on terms that are favorable to you. (This is different from a Chapter 7 filing, which simply liquidates your assets in order to pay back creditors and does not require ongoing payments.) Chapter 13 bankruptcy also allows you to keep certain property (e.g., house or car) even if you have been behind on payments.
How do I know if Chapter 13 is the right option for me?
You won't be on your own in making that decision. We have a great deal of experience helping people figure out the best option for their situation.
To help you get a sense of where your situation might fit, it may be helpful to know that Chapter 13 is often a good option when:
- You expect to have monthly income or wages.
- You want to eliminate a second or third mortgage and your home is valued below the first mortgage.
- You want to prevent a foreclosure on your home or a repossession of your vehicle. Under Chapter 13, if you're behind on your mortgage payments or property taxes, you can set up a plan to make those payments over a 3 to 5 year period on more favorable terms.
- You have certain debts that cannot be eliminated in Chapter 7, such as unpaid income taxes or child support. Again, Chapter 13 allows you to pay these back over a 3 to 5 year period, and it usually prohibits wage garnishment.
The "Means Test": When Chapter 13 is the only option
In 2005, Congress created a new bankruptcy law. One of the new requirements in the law is that anyone who files for Chapter 7 must show that their monthly income is below the average income for people in their area. This is called the "means test." If your income is above the designated average and you wish to file for bankruptcy, then you may be required to file Chapter 13 instead of Chapter 7. At your initial consultation, we'll help you figure out if you're eligible for filing under Chapter 7, or whether it makes more sense to file under Chapter 13.
How long will my Chapter 13 Bankruptcy case take, and what's required of me?
Chapter 13 bankruptcy cases usually take 3 to 5 years, depending on the kind of debt you have as well as the amount. Your role in the process will be to make monthly payments during that time. You will also need to attend a few simple administrative hearings. These hearings are typically short and relatively informal, and we'll be there with you to hold your hand and make sure it all goes smoothly.
Which debts do I have to pay in a Chapter 13 case?
When you file for Chapter 13 bankruptcy, you have to list all of your debts, i.e., all the creditors to whom you owe money and the amount you owe each creditor. We can then put your debts into 3 basic categories:
- Secured debt, such as what you pay for your home or car, which you will continue to pay for outside of the bankruptcy case or as part of your trustee payment in the case of most mortgages.
- Debt that cannot be restructured in a Chapter 7 case, such as mortgage arrears, car payments, furniture, IRS taxes and back due child support. In Chapter 13, these debts can be included in the payment plan and paid over time.
- Unsecured debt that can be discharged in a Chapter 7 case, such as credit cards, medical bills, payday loans, personal loans, judgments and repossession deficiencies. These will also be included in your payment plan, though usually you will end up only paying a percentage of the total amount owed, and in some cases you may not have to pay any of the amounts owed.
Costs: How much do I have to pay to file for Chapter 13 bankruptcy?
The cost of filing a bankruptcy case is an important consideration. Therefore, we always let our clients know that we will work with any budget. Typically, a bankruptcy attorney's fee ends up being a small percentage compared to the total amount of debt the client is able to eliminate.
In addition to attorney fees, there are certain fees for any bankruptcy case
- A Chapter 13 filing fee of $274.00 payable to the Bankruptcy Court.
- A Credit Counseling Course before filing and a Financial Management Course after completion of your case, at $35 to $50 per course. These courses are required by the 2005 bankruptcy law.
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