When most people hear the word bankruptcy they immediately think of Chapter 7 bankruptcy, which eliminates the obligation to pay back the majority of their debts. However, there is another type of bankruptcy available for those who are looking for additional options to take care of their outstanding debts. Chapter 13 bankruptcy can be useful for anyone who may be behind on large debts like car or house payments and wants to find a good way to get caught up. While filing for Chapter 13 bankruptcy isn’t for everyone, it is worth taking a closer look when considering how to properly take control of your financial future.
A Comprehensive Overview of Chapter 13 Bankruptcy
When you decide to file for Chapter 13, you are able to keep your valuable property, paying back all or a portion of your debt over a 3 to 5 year period. This is different from Chapter 7, where individuals typically surrender some property to a bankruptcy trustee in order to pay their creditors and have their debts canceled out. Because Chapter 13 allows people to pay off their debts over time, it is also referred to as reorganization bankruptcy.
Who is Eligible to File Chapter 13 Bankruptcy?
Filing for bankruptcy isn’t always a good solution for everyone, so it is important to take the time to explore other debt repayment options before jumping into the process. Because Chapter 13 requires that individuals use their own income to repay some or all of their debts, it is important that you prove you are able to meet your repayment obligations. If you have irregular or limited income, the court may rule that you cannot file Chapter 13. Additionally, if the total of the debts owed is too high, you may be ineligible to file this type of bankruptcy. If you are unsure which type of bankruptcy is right for you, we suggest consulting with one of our experienced bankruptcy attorneys before taking things further.
Understanding the Filing Process
One of the very first steps that you must complete to begin the bankruptcy process is to undergo credit counseling with an agency that has been approved by the United States Trustee’s Office. During this time, the approved agency will review your budget to determine if there are any other options for regaining control over your finances, before giving their approval to file for bankruptcy. When considering credit counseling it's important to keep in mind that these services are not typically free and on average cost about $25 to complete.
Congress passed new laws in 2005 that were designed to cut down on the abuse of the bankruptcy system by those who should be able to pay back their debts without filing. By utilizing a means test, individuals can calculate their current income against any reasonable or necessary expenses, family size and median income of your home state. If the test shows that you should be able to pay off your debts in part and filing would be an abuse of the system, you will have to find another way to handle your debts.
How Do Repayment Plans Work?
How Long Will Your Repayment Plan Last?
When you initially file for Chapter 13, you will be required to propose a plan to pay back all of the creditors that must be paid. These debts will be classified as either unsecured (with no collateral) or secured debts (with collateral). The length of your repayment plan depends solely on how much you earn and the amount of debt that you owe. For example, if your monthly income for the last 6 months prior to the date of filing is more than the median income in your state, you will likely have to propose a 5-year payment plan. However, if your income was lower than the state median, you may be able to propose a 3-year repayment plan.
What If You Can’t Make Your Planned Payments?
If a situation arises where you are unable to follow your Chapter 13 payment plan, the bankruptcy trustee may be able to modify the plan or the court could rule to discharge your debts depending on the situation. Some common reasons for this type of ruling may include a debilitating illness or a sudden plant closing that leaves you without other immediate employment options.
In certain situations, the bankruptcy court may not let you modify your repayment plan. If this happens, you may be able to convert to a Chapter 7 bankruptcy or ask the court to dismiss the Chapter 13 filing. But this option will leave you responsible for any debts plus interest that your creditors did not charge while your Chapter 13 case was pending.
Other Requirements to Consider
Even though you are in the process of filing Chapter 13, it is important to keep in mind that you will still be responsible for other important financial payments, including:
- Your House Payment
- Car Payments
- Child Support
- Alimony Payments
During this time you will also be required to file your tax returns as normal and make sure that those debts are paid in a timely manner.
Can You Get Credit During a Chapter 13 Case?
It may sound crazy to some, but it is still possible to get credit during a Chapter 13 case. However, it is not as simple as just applying for a new credit card. You are required to ask the bankruptcy court for permission and any credit you acquire must be for something that is necessary like a car that allows you to get back and forth to work. Additionally, if you decide to refinance or work out a new loan modification with your mortgage lender, the court will treat this like a new debt. You must file a motion with the court explaining the transaction. You may also need to testify to your bankruptcy judge why it is necessary to take on this additional financial obligation and how you plan to afford an additional payment.
Once you have finally completed all of the payments outlined under you plan and the court is satisfied that any domestic obligations are current, it will issue a discharge order. This is a great accomplishment that should result your current bills being up-to-date and any priority debts paid in full. This also means that any remaining unsecured debts will now be discharged, except for certain debts such as student loans.
Begin the Chapter 13 Filing Process with Our Experienced Legal Team
Does filing for Chapter 13 bankruptcy sound like it may be the best option to help you regain control of your finances? If you think you may be a good candidate for Chapter 13, don’t waste any more time stressing over your debts. Instead, visit the highly-trained team at Scura online today to schedule an initial consultation.
Whether you need to completely eliminate your debt through Chapter 7 bankruptcy, or need to reorganize your credit payments through Chapter 13 or Chapter 11, we are well qualified as a full-service bankruptcy law firm for people in these and other New Jersey counties: Passaic County, Hudson County, Essex County, Bergen County, Morris County, and Sussex County. Call us today at 973-870-0434 or toll free 888-412-5091.