How Does Chapter 13 Bankruptcy Work? Many people think of bankruptcy court as the final stop on a path to financial ruin, the only option left when repaying debts seems impossible. But there’s hope even in bankruptcy, and Chapter 13 could help provide some relief.
The Wage Earner’s Bankruptcy is another name for Chapter 13. People who are earning a living but have fallen far behind on their debts due to trying to make credit card payments should consider filing for bankruptcy under Chapter 13.
Your debts are rearranged when your Montgomery bankruptcy lawyer gets your plan confirmed by the bankruptcy judge and a payment plan is established. As long as you comply with the terms of the repayment plan issued by the bankruptcy court, you should be able to keep your house after filing for Chapter 13 bankruptcy.
Under Chapter 13, you have 3-5 years to get on track paying debts while applying all your disposable income to debt reduction. That means no lavish living, but the Chapter 13 option may let you eliminate unsecured debt like credit card payments, while you catch up on your mortgage payments.
You’ll also be supervised by a court-appointed trustee who will collect and distribute your payments.
No bankruptcy filing—Chapter 13, Chapter 7, or Chapter 11—eliminates every single type of debt. Student loans, most taxes, and alimony and child support obligations are all ineligible for discharge in most cases. While filing for Chapter 13 bankruptcy in Clanton, or anywhere else in Alabama, may make it more difficult for you to borrow money in the future, it can also wipe out many other debts.
To qualify for Chapter 13, you must: Have a steady income, have not filed for a Chapter 13 bankruptcy for two years, or a Chapter 7 for four years, be current on your tax filings, not have unsecured debt of more than $419,275, and your secured debt can’t be more than $1,257,850. These figures fluctuate periodically to reflect changes in the consumer price index.
There are certain benefits to filing for Chapter 13, including time to organize your finances. After the bankruptcy court announces its decision, you have more time to pay back what you owe.
If the bankruptcy settlement requires you to repay the amount yourself, Chapter 13 shields your loan cosigners from collection efforts. Chapter 13 features a two-year waiting time as opposed to Chapter 7’s eight-year waiting period if you need to file for a second bankruptcy.
After a Chapter 7 bankruptcy is finished, you can also file a Chapter 13 bankruptcy and ask for a reduction in any obligations that are still due.
To begin a declaration of Chapter 13 bankruptcy, find a Birmingham bankruptcy lawyer, or one wherever you live, who will give you an evaluation and estimate on what you’ll have to pay to file.
As for documents and other information, you must provide: a list of creditors and the number of their claims, proof of income, a list of any properties you own and any leases in your name, a list of your monthly living expenses, and provide tax information, specifically your federal tax return and any statements of unpaid taxes.
After your bankruptcy lawyer in Prattville, or wherever you are, files your paperwork, you will then get a letter from the court clerk notifying you, your creditors and your court-appointed trustee that collection activities on your accounts have been suspended. That means creditors have to stop hounding you for payments.
A bankruptcy judge will schedule a hearing to evaluate your proposed repayment plan to see if it is reasonable and compliant with the law. Although creditors may protest, most judges permit filers to make many changes to their plans.
After that, it’s just a matter of sticking to your repayment plan. If you’re late or miss payments, the trustee could move to dismiss your Chapter 13 case.
Attorney Steven A. Harris regularly blogs in the areas of family law, bankruptcy, probate, and real estate closings on this website. Mr. Harris tries to provide informative information to the public in easily digestible formats. Hopefully you enjoyed this article and feel free to supply feedback. We appreciate our readers & love to hear from you!