Sometimes, things don’t go right and our finances can get out of control. Fortunately, we are afforded debt relief by the U.S. Bankruptcy Code. The code lists many different types of bankruptcies under different bankruptcy chapters, and each type is also called the chapter under which it is written.
For personal bankruptcies, the two most common types are Chapter 7 bankruptcy and Chapter 13 bankruptcy. Chapter 7, also known as liquidation bankruptcy, involves liquidating one’s assets to pay off as much debt as possible, with the leftover debt being discharged.
Chapter 13 bankruptcy, on the other hand, is a repayment bankruptcy in which a person’s debts are not discharged, just restructured to a repayment plan that he can pay off in three to five years
If you have any more questions about the different types of bankruptcy in bankruptcy law and bankruptcy filing, don’t hesitate to contact a bankruptcy attorney at The Grafton Firm, a Towson, Maryland bankruptcy law firm.
To file for chapter 13, your secured debts and unsecured debts cannot exceed certain amounts. For April 2019 to April 2022, it:
- $1,257,850 for secured debt
- $419,275 for unsecured debt
Secured debt is backed by collateral, including your mortgage and car loan while unsecured debts are those that are not, which includes credit card bills and medical bills.
Chapter 13 bankruptcy is only for individuals and is not open to companies. But if you are a business owner and your business has acquired debts that are all on you as the sole proprietor, Chapter 13 might still apply to you.
Filing for Chapter 13 means you plan on paying for your debts in increments over a certain amount of time. This assumes that you will have the means to do so.
In that case, you’d have to prove to the court and your creditors that you have a steady income that is enough for you to buy your daily needs with enough left over to go to paying your debts. If your income is too small, or if it’s irregular, the bankruptcy court might not accept your Chapter 13 repayment plan.
If you are planning to file for bankruptcy, don’t hesitate to contact us at The Grafton Firm to discuss your eligibility for bankruptcy. We will also help you choose which bankruptcy type is best for you among the many different types out there.
Chapter 13 Process
Credit Counselling and Filing Fees
The first step to filing any form of bankruptcy is to attend credit counseling classes by credit counseling agencies approved by the U.S. Trustee’s office. These classes, will teach you about the bankruptcy process, give you financial education, and help you identify if you have enough money to pay your creditors.
These classes will cost between $25 and $35 per course. If you are filing for Chapter 13, you will most likely have to pay this fee. Usually, only Chapter 7 filers can get a discount.
Once you have completed counseling, you will receive a certificate. You will bring this certificate and your bankruptcy forms to the bankruptcy court and file them. You will also have to file a filing fee of $313.
Repayment Plan and Confirmation
You will then propose your plan to the court and to your creditors which should include all the debts that you owe. For this step, you will have to use the Maryland local form.
As you present your plan, the court, your creditors, and your bankruptcy trustee will be able to raise objections. You can address these objections on the spot and make changes to your plan. If your creditors and trustee approve of your plan, it will then be up to the court to confirm your plan.
The basis for the court’s confirmation will be the following:
- Feasibility- of your payment plan can be supported by your income,
- Good faith- that you are not trying to manipulate the bankruptcy process,
- Legality- if all the terms of the plan are in accordance with the law.
You may represent yourself in the confirmation process, but cases, where people are representing themselves, are rarely successful. Presenting your plan means you will be facing objections, so you must know your rights, stand your ground, and defend yourself and your plan.
It is for this reason that getting a bankruptcy lawyer for chapter 13 bankruptcies is almost always recommended. Contact one of our Towson, Maryland bankruptcy attorneys at Grafton Firm, LLC today.
The good thing about filing a chapter 13 is that you are not legally obliged to liquidate your properties to settle your debts if your income is enough to pay for it. This is also why most filers present five-year plans- to be able to spread out the expenses over a longer period of time.
Types of Debt
In making your plan, you also have to keep in mind the different types of debt that you have, because the payment process for them will be slightly different.
1. Priority Debt
Priority debts are debts that carry the most severe punishments if not paid. This includes tax debts, child support, and alimony. These must be paid for in full.
2. Secured Debt
Secured debt is debts secured by collateral including mortgages and car loans. If you want to keep these collaterals, you must be able to pay the debt associated with them, or else your debtor will be able to seize these properties.
3. Unsecured debt
Your plan must show that you will use the income that is leftover from paying the other two debts to settle your unsecured debt. Fortunately, in some cases, you won’t have to pay for the entire amount of this debt, or at all.
Inability to Pay Plans
In the unfortunate event that something happens which forces you to be unable to follow your payment plan, you have a few options. You can modify your plan to decrease the amount you have to pay for your unsecured debt or remove it completely. If you are not able to pay even your secured debt, the court might let you discharge your debt, but only on the grounds of hardship.
You may also be allowed to shift to a Chapter 7 bankruptcy which will be able to eliminate a good portion of your debts. However, this opens you to the likely event of having to liquidate your assets to be used as payment.
Chapter 13 Ending and Debtor Education Course
At the end of your payment plan, you will once again stand in front of the court and you’ll have to show that you are current in all your obligations and that you have taken a debtor education course which teaches you how to manage money and build credit after bankruptcy.
Once you can show these things, the bankruptcy court will discharge the rest of your dischargeable debts, and you will be officially debt-free, except for a few nondischargeable debts. Congratulations!
If you need help filing for bankruptcy, don’t hesitate to contact one of our Towson, MD bankruptcy lawyers at Grafton Firm, LLC. As a Maryland law firm, we are committed to helping all Maryland residents reach financial freedom.