How To File For Bankruptcy Chapter 13 – Carron Armstrong is a bankruptcy and consumer attorney specializing in debt and bankruptcy for The Balance. For more than 40 years, she has helped educate consumers and businesses about finance through her work at her firm, the Carron Nicks Law Firm, teaching legal and real estate courses at Texas colleges, and through her writing. She holds a J.D. in Law from Tulane University.
Janet Berry-Johnson specializes in tax and accounting, with expertise grounded in a 10-year career as a Certified Public Accountant.
How To File For Bankruptcy Chapter 13
Bankruptcy is not about taking off your shorts and hitting the street. far away Of course, there are several different types of bankruptcy, each with their own procedures and rules, designed to accomplish different goals.
How To File Chapter 13 Bankruptcy
More information about Chapter 13 debt discharge (Chapter 7) and your financial reorganization. A Chapter 13 proceeding requires the debtor (what we call the person filing the bankruptcy case) to make monthly payments to a Chapter 13 trustee for a period of 36 to 60 months. The trustee distributes the money to the debtor’s creditors who have filed proper claims.
The Bankruptcy Code is the federal law that governs our bankruptcy court system. The code is divided into numbered chapters and sections. So we refer to each bankruptcy by number in the chapter of the Bankruptcy Code that covers it.
Chapter 13 and Chapter 7 are popular choices for the average consumer. In theory, both options end in debt discharge. You are freed from paying certain debts, such as credit cards and medical bills. The difference between 13 and 7 is how you allocate
In a Chapter 7 case, you are required to turn over any non-exempt property. Exempt property is defined under federal or state law and is typically property you deem necessary to get a fresh start after bankruptcy. In a Chapter 7, you will turn over all non-exempt property to the trustee, who will sell it for the benefit of your creditors.
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If you file for Chapter 7 bankruptcy, the court will do what is called a “means examination.” This test determines whether you have the financial ability to support the repayment plan required by Chapter 13. If the court determines that you have enough money at the end of the month to pay your debts, you have “failed” the test and you are left with two realistic options: Chapter 13 or abandoning your bankruptcy pursuit.
Your other option is to proceed with Chapter 7 in the hope that you can prove that you cannot pay your debts. If you choose this route, you will be proceeding under the “presumption of abuse,” meaning you are abusing the bankruptcy laws by pursuing a full discharge when you have the means to repay your debt.
In a Chapter 13 case, instead of turning your property over for sale to a trustee, you make payments over 36 to 60 months, who distributes the funds to a Chapter 13 trustee and files a claim that the court approves.
Why would someone file a Chapter 13 case that can last as long as five years when a Chapter 7 usually lasts about six months? There are a number of factors that go into that decision.
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Chapter 13 can provide you with bankruptcy protection if you earn too much money to qualify for Chapter 7 or if you received a discharge in a previous Chapter 7. You get the length of the plan to repay past dues on houses, cars and other secured loans. Chapter 13 allows you to set new terms for paying off a car loan that is more than 2.5 years old.
Chapter 13 allows you to pay off income taxes owed and domestic support obligations, such as child support and alimony, through a three- to five-year payment plan. This bankruptcy protects any co-signers you may have, and it can help you reduce high student loan payments.
Also, Chapter 13 allows you to protect property that you had to give up in Chapter 7. Also, there is a chance that your bankruptcy attorney fees will be rolled into your repayment plan.
Chapter 13 can be a lifesaver for people who are committed to making it a success. Chapter 13, however, is not easy to survive. In fact, the American Bankruptcy Institute noted in a 2017 study that only 38.6% of debtors completed their Chapter 13 plan. But knowing what to expect is one of the most important factors in setting yourself up for success.
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What makes Chapter 13 special is its payment plan. Payments last 36 to 60 months and can include money going to unsecured creditors, past due taxes and home mortgage payments. That might include car or house payments and a portion of your attorney’s fees. The payment plan is designed to:
The types and amount of debt you owe will determine your payments as well as your income and your reasonable and necessary expenses.
While some flexibility can be built into payment plans and budgets to account for the unexpected, it is difficult even for experienced bankruptcy attorneys and Chapter 13 trustees to account for everything that can happen.
You may not know for months after filing your case whether your proposed plan payments are acceptable to the bankruptcy court and the Chapter 13 trustee. The trustee verifies your income and makes sure that your expenses are not excessive. It takes several months for creditors to file claims and for all players to review those claims. If you disagree with a claim, the bankruptcy judge may have to decide the dispute. This process can take several months to a year to complete.
The Chapter 13 Discharge
Filing bankruptcy no longer carries the stigma it once did. Most people have filed bankruptcy in the last 40 years.
Despite the large numbers, people generally don’t want to broadcast that they filed for bankruptcy. Everyone respects that concern, but it’s true that bankruptcy cases are public records. On the other hand, most people will never learn about your case if you don’t have a reason to look at them.
However, there are exceptions. Most Chapter 13 trustees require you to make your payments through a wage deduction. The trustee will send a form to your employer to process the deduction.
If you feel strongly that a pay cut will cause you hardship at work, you can file a motion asking the court to allow you to pay the trustee directly. The court will not allow direct payment unless you can show that you are at risk of losing your job, being demoted, losing security clearance, or suffering other serious consequences.
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In addition to your employer, others may learn about your case because of the notices each bankruptcy court must send to creditors. If your creditors include family or friends, they will receive the notice and know about your case. Similarly, the court will send notice of your bankruptcy case to a co-signer on any of your debts or accounts.
If you’ve put off paying your debt because you’ve been out of work or because of a drop in income, you may find it very difficult to resume making those house, car, or child support payments.
If you fall behind on your home or car payments while you’re in a Chapter 13 case, the lender can file a motion with the court asking for permission to foreclose on the home mortgage or repossess the vehicle. This is called a motion to stay or a motion for relief from stay.
If you are behind on your child support or alimony payments when you reach the end of your payment plan, the court will not issue you a discharge.
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Differentiating between the different types of bankruptcy and knowing when it’s appropriate to file for one can be confusing.
In this guide, we’ll explain Chapter 7 and Chapter 13—the two most common types of bankruptcy—what happens when you file bankruptcy, how to do so, and questions to ask yourself to decide if bankruptcy is right.
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