If you have been struggling with your finances for some time despite having a regular source of income, you can consider declaring bankruptcy. However, before you file, you should learn about the basics and check whether filing for Chapter 13 bankruptcy is the best option for you.
About Chapter 13 Bankruptcy
The bankruptcy laws enacted by the federal government are aimed at giving relief to people that have been struggling financially. Filing for Chapter 13 bankruptcy allows you to keep your property (such as a mortgaged house or car) even if you have a steady income.
Once you file for bankruptcy, the court will approve a repayment plan that you can use your future income to pay off your debts. Once the court approves your filing, you will typically get a repayment plan for a period of 3-5 years (never more than 5 years in duration).
However, you should remember that there are certain debts that won’t get wiped out by Chapter 13 bankruptcy, including:
Mortgages
Auto loans
Tax debts or government fees
Student loans
Child support or alimony
Basics of a Chapter 13 Bankruptcy Plan
1. How You Should Handle Debts
Your Chapter 13 repayment plan usually has provisions for the total repayment of priority debts. So, you can include claims like bankruptcy filing costs and taxes as well. You are even allowed to make alternative arrangements with priority creditors. Additionally, you may not be required to pay back some unsecured debts if you make timely payments throughout the plan period.
2. How You Should Make Payments
A Chapter 13 Trustee is appointed in each case. He or She is the disbursement agent for your Plan payments. So, your creditors won’t have any direct access to you. It also means that they will cease any attempts to recover the debts covered under the Chapter 13 process. All you need to do is make all new mortgage payments (from the time of filing) on time and meet the terms of the agreement.
3. Can Your Case Be Dismissed?
To get out of debt, simply stick to the terms of your Chapter 13 repayment plan. But, if you miss any plan-prescribed payments, the bankruptcy Trustee can ask the Court to dismiss your case by filing a motion. You have the right to be heard at any such motion.
Thus, if you notice your income decreasing during the repayment period, you should look for other options. You can ask the court to reduce the disposable income amount, request for a hardship discharge, or consider switching to Chapter 7 bankruptcy.
If you think the process of Chapter 13 bankruptcy suits your needs, you should check whether you are eligible for it. To qualify for Chapter 13:
You are required to have a regular income. Social security payments or pension payments count for this.
You should have filed all required tax returns for the last four years
You should meet other requirements outlined in the bankruptcy code
If you meet the eligibility requirements, you should prepare your documents and consult with a bankruptcy attorney immediately.
The bankruptcy laws exist so that you get a fresh start and do not stay stuck in debt. Ask a bankruptcy attorney about the chapters of the Bankruptcy Code and for help making an informed decision.