How Do I Know If I Should File For Chapter 13 Bankruptcy?

When paying back debts seems impossible, many people may consider filing for bankruptcy as a way to dig themselves out of a deep financial pit for the long-term. There are several bankruptcy chapters to choose from (six to be exact) and include Chapter 7, Chapter 11, Chapter 12, Chapter 9, Chapter 15, and Chapter 13. Today, we will be talking about Chapter 13 bankruptcy specifically, and how to know whether filing for bankruptcy is the right choice for you.

What is Chapter 13 bankruptcy?

Otherwise referred to as the Wage Earner’s Bankruptcy, this chapter permits those with sufficient income to pay back all or a portion of their debts instead of liquidating their assets. This bankruptcy chapter is most suitable for people whose biggest issue is dealing with the demands of creditors for fast payment, and not necessarily a lack of income. One of the reasons individuals are drawn to Chapter 13 is that they can keep their assets, such as vehicles and homes, as long as they can continue paying the mortgage amount under the settlement plan.

How long do I have to pay back my debts under Chapter 13?

With Chapter 13, individuals will have around 3-5 years to amend their debts using disposable income. This allows people to eliminate unsecured debts and then catch up on other dues such as the mortgage on their home. Chapter 13 is a great way to avoid foreclosure on your home.

While being able to avoid having to vacate your home is certainly going to provide relief to the homeowner, it is important to realize that in exchange you will have to spend many years under constant supervision of court-appointed representatives who are going to collect your payments and then distribute accordingly to creditors.

So what is the process of applying for Chapter 13 bankruptcy?

The first thing you must do is speak with an attorney who is knowledgeable in bankruptcy filings for assistance. You will have to pay filing fees and other administrative fees when submitting your documentation. You may also be required to provide the following:

  • A list of creditors and how much you owe to each
  • Financial paperwork showing your sources of income
  • Tax information, such as your most recent federal tax return 
  • A summary of your current monthly living expenses
  • A list of your property, along with related leases and contracts

After filing, the debtor will have to propose a plan for repayment of debts. The judge will hold a hearing to decide if the plan meets the bankruptcy code requirements. Creditors may object to the plan, however, the judge will have the final say. As the debtor, you will have to work with a trustee or mediator who will forward your payments to creditors. You do not have to speak directly to any of your creditors while you are operating under Chapter 13 bankruptcy. In fact, creditors are required by law to not contact the debtor for payments and may be in violation of the automatic stay if they do so. 

Contact a bankruptcy lawyer today, like a bankruptcy lawyer to schedule a consultation.