Chapter 13 Bankruptcy May Be a Lifesaver for Struggling Americans
If you or a loved one has a steady income but are swimming in debt, filing for Chapter 13 bankruptcy may be the solution. Chapter 13 bankruptcy – also known as a “wage earner’s plan” – allows individuals with a regular source of income to develop a plan to pay down debts over a three- to five-year period.
In addition, Chapter 13 bankruptcy can be used to stop foreclosure proceedings. However, the homeowner must continue to make all mortgage payments that are owed during the bankruptcy repayment period as well as use the bankruptcy repayment period to repay any missed mortgage payments. Also, while Chapter 13 bankruptcy will allow a homeowner to stay in his or her home initially if payments continue to be missed, the home may still be lost to foreclosure.
Chapter 13 bankruptcy proceedings generally follow these steps:
STEP ONE: DETERMINE ELIGIBILITY
To be eligible for Chapter 13 bankruptcy, an individual must meet certain guidelines set out in the Bankruptcy Code, which caps the amount of debt that a person can have and still qualify for Chapter 13 bankruptcy. Currently, an individual’s total unsecured debt must be below $360,475, and his or her secured debt must be under $1,081,400.
And, the debtor must receive credit counseling within 180 days of filing for bankruptcy. The credit-counseling session includes a discussion of the debtor’s eligibility as well as the advantages and disadvantages of filing for bankruptcy and alternatives to filing for Chapter 13 bankruptcy.
STEP TWO: FILE A PETITION
After eligibility has been determined and credit counseling is complete, the debtor may file a petition to declare bankruptcy in the local bankruptcy court. A Chapter 13 bankruptcy petition includes an inventory of the debtor’s financial liabilities and assets as well as monthly income and living expenses. Currently, the court fees to file for bankruptcy total about $275, but the fee can be worked into the repayment plan if needed.
STEP THREE: DEVELOP A PLAN
After the bankruptcy petition is filed and accepted, the court appoints a trustee to develop and administer the repayment plan. The bankruptcy trustee acts as a middle man between the debtor and his or her creditors. The terms of Chapter 13 bankruptcy prohibit creditors from harassing a debtor with phone calls and collection lawsuits, since all debts will be repaid through the terms of the repayment plan, which generally lasts three to five years.
A meeting between the debtor, bankruptcy trustee and creditors is called about a month after filing. The purpose of the meeting is to discuss the debtor’s financial affairs and adjust the terms of the repayment plan. A repayment plan cannot cancel debt, but it can consolidate debts, putting them on the same payment schedule. Consolidating debts allows the debtor to make a monthly payment that is affordable for his or her situation. After the meeting, a court hearing is scheduled so a bankruptcy judge can approve the plan or ask for revisions to be made.
STEP FOUR: FOLLOW THE REPAYMENT PLAN
After a bankruptcy judge approves the debtor’s repayment plan, the debtor is responsible for making all payments in full, on time and according to the terms of the repayment plan. The bankruptcy trustee collects money from the debtor and distributes it to the appropriate creditors. While in repayment, a debtor usually must live on a fixed budget to ensure that payments will be made. If a debtor fails to make payments, a judge can dismiss the Chapter 13 petition or convert the bankruptcy to Chapter 7, which would liquidate a debtor’s assets.
At the end of the repayment period the debtor is able to have any remaining debts discharged. This means that the debt is no longer owed, and creditors are not allowed to attempt to collect the discharged debts. It is important to note, however, that there are certain debts that are not eligible for discharge, including child support, alimony, student loans and restitution.
Although filing for Chapter 13 bankruptcy seems daunting, it can be a lifesaver for those who need help paying down debt. If filing for Chapter 13 bankruptcy seems like a good choice for you, please contact an experienced bankruptcy attorney to learn more about the process. Our firm works for people across northeastern Wisconsin from our Appleton office.