Who Can Declare Chapter 13 Bankruptcy?

Written By: Emil FleysherFebruary 23, 2024
Who can declare chapter 13 bankruptcy

When it comes to managing overwhelming debt, Chapter 13 bankruptcy offers a beacon of hope for many. It's a powerful tool that permits individuals to reorganize their debts. With a firm plan, you will have a path to financial recovery without losing your assets. This type of bankruptcy is not for everyone, though. It requires a steady income and falls within specific debt limits to qualify. At Fleysher Law, we can help you decide if this option is right for you.

Chapter 13 bankruptcy stands out because it caters to those with a regular income who seek to clear their debts while retaining their property. It's particularly appealing for individuals who have fallen behind on mortgage payments and wish to prevent home foreclosure. It’s also frequently utilized to save vehicles from repossession. By choosing Chapter 13, debtors commit to a structured debt repayment plan, typically spanning three or five years, demonstrating a commitment to resolving their financial troubles responsibly. The payment amount is rarely based on the actual debt and instead, is based on affordability or your actual ability to pay. For this reason, most Ch. 13 plans only repay a tiny fraction of the total debt being discharged.

Introduction to Chapter 13 Bankruptcy

Chapter 13 bankruptcy serves as a financial lifeline, enabling individuals overwhelmed by debt to find relief. It differs significantly from Chapter 7 bankruptcy, which liquidates assets to pay off debts. Chapter 13 focuses on debt reorganization, allowing debtors to keep their assets and pay off debts over an agreed period.

What Is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy, often termed a wage earner's plan, is for individuals with regular income. Through this path, you can develop a plan to repay all or part of your debts. Under this plan, debtors propose a repayment plan to make gradual payments to creditors. Generally, the payment term is three to five years.

This bankruptcy type is designed to help those with a steady income but struggle to manage their debt. It offers a way to stop foreclosure on a home, make up missed mortgage payments, and restructure other secured debts. Additionally, it can protect co-signers from the repercussions of bankruptcy and prevent utilities from being shut off.

Eligibility Requirements for Chapter 13 Bankruptcy

Eligibility requirements for chapter 13 bankruptcy

Certain criteria must be met to file for Chapter 13 bankruptcy. This option is not available to everyone, and understanding these requirements is the first step toward filing.

Individual and Business Eligibility

Chapter 13 is primarily for individual debtors or sole proprietors who personally guarantee their business debts. It's not available to corporations or partnerships.

Eligibility hinges on having a regular source of income and total debt that does not exceed specified limits. This ensures that the debtor can maintain a repayment plan. Individuals must also be up-to-date on their tax filings, as this demonstrates financial responsibility and compliance with federal laws.

Debt Limitations and Types

There are specific debt limits for filing under Chapter 13. Your unsecured debts (like credit card debts and personal loans) and secured debts (such as mortgages) must fall within these limits.

This bankruptcy chapter also distinguishes between unsecured and secured debts, prioritizing the repayment of certain debts. Priority debts, like child support, are non-negotiable and must be paid in full through the repayment plan.

Income Requirements for Chapter 13

A key component of Chapter 13 eligibility is having enough income to cover your repayment plan. This income can come from various sources, not just your job.

Determining Your Disposable Income

Disposable income is crucial for a Chapter 13 repayment plan. It's the income left after paying necessary living expenses.

The bankruptcy court examines your disposable income to ensure it covers your proposed repayment plan. This calculation helps determine how much you'll pay to unsecured creditors, including credit card debts or medical bills.

Understanding the Role of Unsecured and Secured Debts

Understanding the role of unsecured and secured debts

In Chapter 13 bankruptcy, how much you pay back depends on whether your debts are secured or unsecured. This distinction affects your repayment plan.

Secured debts are those tied to an asset, like a house or car. Chapter 13 can help pay these debts without losing your property. On the other hand, unsecured debts don't have any collateral backing them. While you may not have to pay these in full, you must use any available disposable income to repay these debts as part of your plan.

The Process of Filing for Chapter 13 Bankruptcy

Filing for Chapter 13 bankruptcy entails several steps, starting with credit counseling and culminating in the bankruptcy court approving your repayment plan.

Pre-Filing Credit Counseling

Prior to filing for bankruptcy, completing credit counseling from an approved agency is a necessary step. This requirement ensures you understand all debt relief options.

The counseling session provides a clear picture of your finances and might even suggest a debt management plan as an alternative to bankruptcy.

Preparing Your Bankruptcy Petition and Repayment Plan

The bankruptcy petition is a detailed document that lists your debts, assets, income, and expenses. Filing this petition officially starts your bankruptcy case.

Alongside the petition, you'll propose a repayment plan based on your disposable income, outlining how to pay back your debts. This plan requires approval from a bankruptcy judge and is central to the Chapter 13 process.

The Advantages of Filing for Chapter 13

The advantages of filing for chapter 13
  • Prevents Home Foreclosure: Chapter 13 can stop foreclosure proceedings. This allows you to catch up on missed mortgage payments over time.
  • Debt Consolidation: It consolidates your debts into a single monthly payment. This should make it easier to manage your finances.
  • Protection from Creditors: Once you file, creditors must stop all collection efforts, including calls, letters, and any legal action.
  • No Direct Asset Liquidation: Unlike Chapter 7, you don't have to sell your assets to pay off your debts.
  • Potential Discharge of Remaining Unsecured Debts: After completing your repayment plan, you might get a discharge of certain unsecured debts, offering a fresh financial start.

Debt Reorganization and Protection from Creditors

Chapter 13 bankruptcy allows you to reorganize your debts into a manageable repayment plan. This plan accounts for your ability to pay and often results in lower monthly payments.

By filing for Chapter 13, you also gain immediate protection from creditor harassment and legal actions. The automatic stay goes into effect. This prevents creditors from trying to recover any money from you. This protection extends throughout the duration of your bankruptcy case, offering peace of mind as you work towards debt relief.

Chapter 13 vs. Chapter 7 Bankruptcy: Making the Right Choice

Chapter 13

  • Keeps Your Property. Allows you to keep your assets while you repay debts.
  • Handles a Wider Range of Debts. Can manage mortgage arrears and certain debts not dischargeable in Chapter 7.
  • Longer Repayment Terms. Offers a three to five-year repayment period.
  • Protects Co-Signers. Shields co-signers on consumer debts from collection efforts.
  • Debt Limits. Requires that your debt does not exceed certain thresholds.

Chapter 7

  • Quick Process. Typically, it concludes within a few months.
  • No Repayment Plan. Does not require a repayment plan for unsecured debts.
  • Asset Liquidation. It may involve selling nonexempt property to pay creditors.
  • Income Requirements. Only available to those who pass the means test, indicating they do not have sufficient income to repay debts under Chapter 13.
  • Immediate Debt Relief. Provides a faster path to eliminating many types of debt.

Life After Chapter 13 Bankruptcy

Life after Chapter 13 bankruptcy offers a fresh start. You don't have to worry about carrying overwhelming debt. You emerge with a cleaner financial slate but must continue practicing responsible financial habits.

Completing Your Repayment Plan

Successfully completing your Chapter 13 repayment plan is a significant achievement. It demonstrates your commitment to handling your debts and can considerably improve your credit score over time.

This completion also relieves the debts included in your plan. You'll have more financial freedom and a better foundation for future financial planning.

Discharge of Remaining Debts

Upon completing your repayment plan, you may receive a discharge of any remaining unsecured debts. This discharge means you're no longer legally required to pay these debts.

Certain debts, however, like child support, alimony, and specific taxes, cannot be discharged. Understanding which debts will remain even after your bankruptcy case concludes is crucial.

How Fleysher Law Can Help with Your Chapter 13 Bankruptcy Case

  • Expert GuidanceFleysher Law provides expert guidance throughout bankruptcy, ensuring you understand every step.
  • Customized Repayment Plans. Our attorneys help design a repayment plan that fits your financial situation, maximizing your chances of approval by the court.
  • Protection Against Creditors. We defend your rights against creditors, ensuring they respect the automatic stay and any other protections afforded to you by bankruptcy law.
  • Handling All Legal Documentation. Our team manages all necessary legal documentation and filings, simplifying your bankruptcy filing process.
  • Post-Bankruptcy Support. We offer advice on rebuilding your credit and managing your finances after bankruptcy, setting you on a path to financial stability.

Rely on Fleysher Law for Help With Chapter 13 Bankruptcy Filings

Rely on Fleysher Law for help with chapter 13 bankruptcy filings

Fleysher Law stands ready to assist you with your Chapter 13 bankruptcy filing. Our expertise ensures that your case proceeds smoothly. Considering filing for Chapter 13 bankruptcy can be daunting, but you don't have to navigate this process alone. Fleysher Law brings a wealth of experience and a compassionate approach to every case, providing the support you need to achieve financial recovery.

With Fleysher Law on your side, you gain a partner committed to your financial well-being. Our law office works tirelessly to protect your interests, offering personalized solutions to meet your unique situation. Call us today to schedule a consultation with our bankruptcy attorney to discuss your secured and unsecured debt.

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