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An Overview of Chapter 13 Bankruptcy
A bankrupt individual who is unable to pay back any outstanding debts to creditors may choose to file bankruptcy as the last resort to solve debt problems. When you struggle financially, you become incapable of paying your financial obligations. Bankruptcy can help you pursue debt settlement, restructure your finances, and rebuild your credit score.
Before you declare bankruptcy, you must know how to choose the most appropriate bankruptcy type that will solve your financial problems. Chapter 7 and Chapter 13 are the two common types of bankruptcy. A reliable bankruptcy attorney in Towson can help you choose which one is right for you.
This article will answer the following questions to help you understand how Chapter 13 bankruptcy works:
- What is Chapter 13 Bankruptcy?
- How Do I Qualify For Chapter 13 Bankruptcy?
- How Do I File for Chapter 13 Bankruptcy?
- Is Chapter 13 Bankruptcy Right For You?
- What are the Consequences of Filing Chapter 13?
- What is the Role of a Bankruptcy Attorney?
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy or also known as the “wage earners” bankruptcy, refers to a United States bankruptcy proceeding in which debtors undertake a reorganization of their finances under the supervision and approval of the bankruptcy court. This bankruptcy chapter requires you to have a stable income. This chapter aims to keep current on loans and repay debts while letting you keep your assets.
As part of a Chapter 13 reorganization, debtors must submit and follow through with a plan to repay outstanding debts within three to five years.
How Do I Qualify For Chapter 13 Bankruptcy?
To qualify for Chapter 13 bankruptcy, you must meet the following criteria:
- You must have a regular monthly income.
- You must not have filed a bankruptcy petition (Chapter 7 or 13) in the last 180 days that was dismissed for certain reasons such as failing to comply with court orders.
- You cannot have filed for Chapter 13 bankruptcy in the past two years or Chapter 7 bankruptcy in the past four years.
- You must be current on tax filings.
How Do I File for Chapter 13 Bankruptcy?
Before you file for Chapter 13 bankruptcy, it is advisable to consult a credible Towson bankruptcy attorney to help you assess your financial situation and determine whether this chapter is the best option for you to have a fresh start and aim for a debt-free life.
In this bankruptcy chapter, you need to prove to a bankruptcy trustee that you are financially capable of a debt reorganization. Your restructured payment plan requires approval from the court to repay your secured and unsecured debts. You will be able to keep your assets and pay your debts within 3-5 years.
Here are the steps in filing for bankruptcy Chapter 13:
Take credit counseling sessions
It is mandatory to take credit counseling sessions from a credit counseling agency before the bankruptcy filing. During the session, your counselor may help you create a repayment plan
Fill out bankruptcy paperwork
You need to accomplish the form with the complete details of your present financial status. You need to declare all your assets, liabilities, monthly income, living expenses, bank account information, credit card debt, loan debt, and property transactions. A competent Towson bankruptcy attorney can assist you in such filing. You need to ensure that all the details written on your paperwork are accurate before you file your case to the local court and pay the filing fees.
File bankruptcy petition
Your bankruptcy case starts when you file the petition and appoint a bankruptcy trustee. Once you have filed for bankruptcy, you enter an “automatic stay”. This is a provision in United States bankruptcy law that temporarily prevents creditors or collections agencies from pursuing debtors for amounts owed.
Submit payment plan
You must submit a proposed payment plan within fourteen days from the filing date of the bankruptcy petition. Even if the plan hasn’t been approved yet, you must start making monthly payments on the plan within 30 days from the filing date.
Attend the creditors’ meeting
This is held outside of the presence of the judge and, depending upon the case chapter, usually occurs between 21 up to 50 days after the filing of the petition. At the meeting, the bankruptcy trustee checks the debtor’s identification and asks a series of questions about the bankruptcy paperwork. Creditors who attend can ask about any issues related to your financial matters.
Attend the confirmation hearing
The debtor, creditors, and bankruptcy trustee can meet in court to settle and confirm the terms of the payment plan no later than 45 days after the creditors’ meeting.
Follow the payment plan
Creditors are paid according to the repayment plan for over three to five years.
Take a debt management course
You are required to complete a debt management course from authorized credit counseling agencies after the bankruptcy filing.
Is Chapter 13 Bankruptcy Right For You?
Before you decide to file for bankruptcy, it is important to know how it will affect your debt and credit. A reliable Towson bankruptcy attorney can help you decide whether filing Chapter 13 bankruptcy is the best way to solve your financial dilemma. Chapter 13 can be the right option for the following situations:
- Your debt (excluding mortgages) is 40% higher than your yearly income.
- You try so hard to repay your outstanding debts, but you still don’t make any progress.
- You cannot find other ways to pay back your debts within the next 5 years.
- You have a co-signer on an account in arrears.
- Paying your debts prevents you from achieving other financial goals (such as retirement savings).
- Your outstanding debts (child support, recent taxes, or student loans) are unlikely to be forgiven or discharged under Chapter 7 bankruptcy.
- You’re behind on your mortgage or car loan payments and want to keep them current.
What are the Consequences of Filing Chapter 13?
As a bankrupt individual, you worry about the consequences that you might face once you file for bankruptcy. One of the common concerns is the after-effect of bankruptcy on your credit score.
The Chapter 13 bankruptcy will remain on your credit report for 7 years and it can damage your credit score. However, the effect of bankruptcy on your credit history will gradually fade with time as you think of ways on how to improve your credit score after bankruptcy. You need to make monthly payments on time because your payment history gives the largest impact on your credit score. Rebuilding credit requires a lot of effort, hard work, and effective debt management skills.
What is the Role of a Bankruptcy Attorney?
In a bankruptcy filing, it is important to choose the right bankruptcy chapter that will help you pay off your debts and have a fresh start. It is advisable to seek legal advice from our competent Towson bankruptcy attorneys at The Grafton Firm. Our lawyers will work with you to figure out an ideal payment plan that you would be able to afford. We will represent you during the court hearings and creditors’ meetings and ensure that your best interests are pursued. We will help you learn about Chapter 13 bankruptcy and other debt-relief options that will allow you to achieve debt settlement and financial freedom.