Bankruptcy protection is one of the rights Americans have when they’re put in financial hardship. Declaring bankruptcy can give you debt relief with credit card debt, student loan debt, medical bills, and other types of debt. It can also grant you respite from wage garnishment and harassment from a collector.
In this article, we’ll discuss what you need to know to determine whether filing for bankruptcy under Chapter 13 is worth your time and effort. Read on to find out about how Chapter 13 works and its pros and cons. Of course, these are all generalizations and specifics vary from case to case. It’s still best to consult with a bankruptcy attorney.
Chapter 13 Overview
Chapter 13 bankruptcy is also known as a reorganization bankruptcy. People typically file for this if they don’t qualify for Chapter 7 or they want to keep certain assets, like their home or their car, and just stop foreclosure or repossession.
If you have a steady income and want to keep your property, then Chapter 13 is the right one for you. Consult with an expert in bankruptcy law for more information.
When you declare bankruptcy under Chapter 13, the court administers a debt repayment plan, unlike in Chapter 7 where your assets are liquidated to pay off your debt. Any remaining debt after you pay off your plan will be wiped out and discharged, giving you a fresh start at being financially secure.
Who is eligible for Chapter 13 bankruptcy?
Unlike Chapter 7, there is no means test to qualify for this Chapter. Anyone with regular income can file for Chapter 13 bankruptcy, as long as the total debt is within the threshold. The individual’s monthly income level helps determine the timeline of the repayment plan. If your income exceeds the state median level income, you’ll be paying for your bankruptcy for five years. Otherwise, it’s for three years.
Repaying debts in Chapter 13 bankruptcy
Debtors first propose their repayment plan and get court approval for it. This plan should describe:
- Who your trustee is
- How much you’ll pay them each month
- How they’ll receive payment
- How long the plan is
The approval usually takes 95 days from the day of filing. Upon filing, a court order called an “automatic stay” prevents further efforts from debt collectors to collect unpaid debt. The debts won’t be discharged until after the plan is paid in full.
There are some advantages to filing for Chapter 13 instead of Chapter 7 — and advantages to filing for Chapter 13 versus not filing bankruptcy at all.
Keep the house
If you’re behind on paying for a mortgage, the repayment plan can help you catch up and save your home from being foreclosed.
Co-signers may be protected
When you file for Chapter 13, creditors cannot collect payment from any of your co-debtors, which means that those who agreed to help you by co-signing would not have to face harassment from collection agencies.
Help with domestic support payments
You can add domestic support obligations, alimony, and child support to your Chapter 13 plan. Once you reorganize your payments, you can avoid jail time and other court cases.
Instead of having to pay separate creditors, you just pay your trustee and they’ll be the one who’s responsible to send payments to the lenders.
Although Chapter 13 can help when you’re in a financial pinch, it does have its disadvantages.
Negative Credit Impact
Your credit score will take a hit after a bankruptcy case. However, it’s much better compared to when your report is covered with your debt. A Chapter 13 Bankruptcy will be on your reports for seven years starting from the bankruptcy filing.
The hit on your credit report affects multiple facets of your life. It can affect your ability to get a job, your application for rent, or the rates and fees for loans.
You must take care to follow the repayment schedule. If you miss or delay any scheduled payment, you might lose the assets you were supposed to protect. All your disposable income would be dedicated to your repayment plan and an increase in your wages could also spell an increase in your monthly payments
Unless you are an expert on the rules of the bankruptcy court in Maryland, the US Bankruptcy Code, and federal procedures, you should expect to need an attorney to file your case. If you file on your own, know that judges and other court employees are prohibited from providing you with legal advice.
Don’t let the potential cost of filing bankruptcy scare you away from the option. If you need help with how to file for bankruptcy, a bankruptcy lawyer from Grafton Firm, LLC can assist. Contact us here or call (410) 505-0414 today for a free consultation.