If your debts have become unmanageable, Chapter 13 bankruptcy can help you regain control. Also known as reorganization bankruptcy, Chapter 13 allows you a bit of breathing room while you catch up on paying back your creditors and restructuring your finances. But the decision to file bankruptcy shouldn’t be made lightly. A Chapter 13 bankruptcy lawyer can help you examine your options and determine the right path forward.
What Are the Benefits of Chapter 13 Bankruptcy?
Chapter 13 is designed for people who may have the money to pay their debts, but not all at once like their creditors are demanding. This chapter is a good option if you have a substantial amount of secured debt.
Your debts are consolidated into a payment plan, in which you fairly compensate your creditors over time and in a way that is within your means. In other words, you can restructure your debts — debts with the highest priority are paid first, and any excess income goes towards paying non-priority debts. In some cases, low priority debts can be discharged as well.
Unlike a Chapter 7, you don’t risk losing or liquidating any property in Chapter 13. That means you won’t risk losing your home, car, savings accounts, and beloved heirlooms during a Chapter 13 bankruptcy.
Another benefit of Chapter 13 is that you may be able to delay or prevent foreclosure on your home or residence. Once you file for Chapter 13, your lender must pause its collection efforts, giving you time to create a plan and resolve your unpaid mortgage debt. You can also incorporate your mortgage into your Chapter 13 repayment plan, which can allow your family to stay in the home that they love.
Eligibility for Chapter 13 Bankruptcy
To qualify for Chapter 13, you do not have to pass a means test, like you do for a Chapter 7 bankruptcy.. You must, however, show that you have adequate income to meet the requirements of your monthly repayment plan schedule. If you cannot convince the bankruptcy court that you have the ability to pay off your debts, they may deny your Chapter 13 filing.
There are also limits on the number of times you can file for bankruptcy over a period of time. If you had debts discharged under Chapter 13 in the past two years, you may be ineligible for another filing. For Chapter 7 bankruptcies, this wait time period extends to four years.
Chapter 13 bankruptcy also has a debt limit. These debt limits currently stand at $394,725 for secured debt and $1,184,200 for unsecured debt. If you owe more than this, you will be forced to either file under Chapter 7 or Chapter 11.
What Is the Chapter 13 Bankruptcy Process?
To initiate a Chapter 13 bankruptcy, you will need to file a series of forms with the federal bankruptcy court. Once the court receives your filing, it will trigger an automatic stay. In other words, your creditors must cease all collection efforts throughout your bankruptcy. The automatic stay allows you to stop creditor harassment, foreclosure proceedings, and other collection actions while you create a plan of attack for settling your debts.
Although the process is more complex than a Chapter 7, your Chapter 13 bankruptcy lawyer can help you navigate the following steps:
- Mandatory credit counseling prior to filing for Chapter 13
- Filing for a Chapter 13 bankruptcy petition
- Establishing a repayment plan
- Attending the meeting of creditors
- Confirming your repayment plan
- Paying all of your unpaid, past-due child support obligations
- Completing your repayment plan
Over the next three to five years, you will continue to make payments based on your income. At the end of this process, any debts that qualify under Chapter 13 will be discharged. If you default on your payment plan, the bankruptcy court will terminate your bankruptcy and your creditors can restart their collection efforts. Therefore, it is vital that you do your best to stick to your payment plan. You should also avoid discretionary expenses for the duration of your Chapter 13 bankruptcy.
If at any point during the bankruptcy, your financial situation changes, you may be able to convert your Chapter 13 bankruptcy into a Chapter 7. However, if you fail to make payments without filing for a conversion, your Chapter 13 bankruptcy case could be dismissed. Your creditors may begin coming after you again. Your attorney can help ensure that this doesn’t happen.
A Chapter 13 Bankruptcy Lawyer Can Help
If you are struggling under a mountain of debt, Chapter 13 bankruptcy can give you a chance to catch your breath while you reorganize your finances. At Carmichael Law Group, we will help you understand your rights and responsibilities, as well as how to avoid costly mistakes that could delay or hinder the process. We have helped hundreds of clients through Alabama and Georgia get a fresh financial start. Contact us today to learn more.