Chapter 13 Bankruptcy

Chapter 13 Bankruptcy

Chapter 13 bankruptcy offers a different type of solution for people who are struggling financially but also:
Have non-exempt assets they want to protect, such as excess value in a home, rental property, or brokerage accounts
Need to resolve secured debt, which can’t be discharged in Chapter 7 unless the property is surrendered
Have too much income to qualify for Chapter 7 bankruptcy

How Does Chapter 13 Work?

Chapter 13 bankruptcy is built around a three to five year repayment plan. This helps the debtor by:
Allowing time to catch up past due balances without late fees, collection costs, and the threat of lawsuits or repossession
Improving the terms on certain types of debt, allowing a lower total payment
Aggregating all past-due balances into one affordable monthly payment to the bankruptcy trustee, putting an end to juggling and prioritizing
Potentially wiping out some remaining unsecured debt when the plan has been successfully completed

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Who Can File Chapter 13 Bankruptcy?

The key to a Chapter 13 bankruptcy case is to get a Chapter 13 repayment plan approved by the court. That means the Chapter 13 filer must show the court that they have sufficient income to make regular plan payments across 36 to 60 months while still paying regular living expenses.

Chapter 13 also differs from Chapter 7 in that there are debt limits. The limits change every three years, and were most recently updated on April 1, 2022. Currently, the debt limits for a Chapter 13 bankruptcy petitioner are:
• $465,275 in unsecured debt, such as credit card debt, medical bills, unpaid rent, old utility bills, payday loans, signature loans, and debt to family and friends
• $1,395,875 in secured debt, such as mortgage debt, car loans, and any other loan where assets have been pledged as collateral or the lender has a lien on property

The Chapter 13 Bankruptcy Process

Chapter 13 bankruptcy starts just like a Chapter 7 case. First, the bankruptcy petitioner must complete a credit counseling session with an approved provider. Then, the case starts with the filing of a bankruptcy petition. The credit counseling certificate must be filed with the petition. The bankruptcy petitioner will also file several schedules, which include information about income, debts, and assets. The schedules are typically filed with the petition, but in an urgent situation may be filed shortly after.

The most challenging step is creating a Chapter 13 plan that is manageable for the debtor and acceptable to the bankruptcy court. This step is complicated, as different debts are treated differently in a Chapter 13 case. Some must be paid in full by the end of the plan, while others may be partially discharged upon completion of the plan. Some may be subject to modification.

Once the proposed plan is filed, both the bankruptcy trustee and creditors get to review the plan and file objections. That may mean negotiating with creditors, or arguing for confirmation over the creditor’s objection.

Once a plan is confirmed, your responsibilities are simple: make monthly plan payments on time, tell the trustee if your income or other financial circumstances change, and keep paying your regular bills as they come due.

Chapter 13 Bankruptcy Attorneys

Crafting a Chapter 13 plan and getting it approved by the bankruptcy court can be tough–so tough that a very small percentage of people who file Chapter 13 bankruptcy without attorneys successfully complete their cases.

If you’re considering Chapter 13, it’s to your advantage to get reliable information and guidance from an experienced bankruptcy attorney right away. Your lawyer can help you determine whether Chapter 13 is the right solution for you, then navigate the complex process of building a plan, negotiating with creditors as needed, and setting you up for success.

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Do I Need a Bankruptcy Attorney?
There’s more to bankruptcy than filling out forms. Though there’s no legal requirement that you hire a bankruptcy attorney, cases filed without a lawyer are much more likely to be dismissed. That means wasted time and money, no financial relief, and possible obstacles to trying again.

An experienced bankruptcy attorney can guide you through the process from beginning to end, helping you choose the best type of bankruptcy for you, ensuring that your property is protected, preparing you for your 341 hearing and helping avoid mistakes that might put your discharge at risk.

How Much Does Bankruptcy Cost?
In 2022, the court filing fees and associated administrative costs to file a Chapter 7 bankruptcy case total $338. In some cases, there may be additional costs. For example, there is a small additional filing fee if you file an amended petition.

For Chapter 13 bankruptcy, that figure is currently $313. The Chapter 13 trustee also receives a small percentage of your monthly plan payments.

You’ll also be required to complete credit counseling before filing and a financial management course before discharge. You can usually get both courses for a package price of about $50.

How Do I Know if I Qualify for Bankruptcy?
Eligibility for bankruptcy depends on a variety of factors, including whether you are considering Chapter 7 or Chapter 13 bankruptcy.

Chapter 7 eligibility depends in part on a means test, which is designed to make sure you really can’t afford to pay your debts. The first step is to compare your household income to your state’s median income for the same household size. If you’re below the median, you don’t have to go any further. If you’re above the median, the test gets a little more complicated.

For Chapter 13, there’s no means test. But, you must be able to demonstrate regular income sufficient to keep up plan payments while covering your ongoing expenses. And, the amount of debt that can be included in a Chapter 13 case is capped at $419,275 in unsecured debt and $1,257,850 in secure debt. (These caps will be adjusted as of April 1, 2022)

There are other variables as well, including residency, any past bankruptcy filings, and more. The best source of information about whether you qualify for bankruptcy is an experienced bankruptcy attorney.

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