Chapter 13 Bankruptcy Basics
- Chapter 13 bankruptcy allows you to keep your property and reorganize debts.
- If you can't make the repayments on time, your bankruptcy case may be dismissed.
- After bankruptcy discharge, debtors may still have to pay student loans and child support.
The government changed bankruptcy laws to make it harder for some people to qualify for Chapter 7 bankruptcy. If you can’t file Chapter 7, your other option may be Chapter 13 bankruptcy. Chapter 13 takes longer, but you can keep most of your property. At the end of bankruptcy, you can discharge debts and get a fresh start. If you have a regular income, Chapter 13 bankruptcy may be the right step.
Filing bankruptcy is a big step. Here are some basics about filing for Chapter 13. If you want to know which type of bankruptcy is right for you, talk to a bankruptcy lawyer about your options.
Many bankruptcy websites assume you know all the terminology and bankruptcy laws. Before we get started, here are some explanations about basic bankruptcy terms.
- Automatic stay: After filing, this puts a hold on any collections, foreclosures, wage garnishments, or lawsuits.
- Bankruptcy code: The federal statutes that cover bankruptcy law.
- Chapter: Different kinds of bankruptcy are under different chapters of the bankruptcy code, the most common being Chapters 7, 11, and 13.
- Chapter 7 bankruptcy: Most of the debtor’s assets are sold to pay off creditors.
- Chapter 11 bankruptcy: Reorganization bankruptcy for businesses.
- Chapter 13 bankruptcy: Repayment of debts over time without selling your assets.
- Debtor: The person in debt who is filing for bankruptcy.
- Discharge: Relief from having to pay off any of the remaining debt.
- Estate: All the debtor’s property at the time of filing.
- Exemptions: Depending on state law, some property might not be included in the bankruptcy estate. Many states protect part of the value of your home so you can keep your home after bankruptcy.
- Liquidation: Selling off your property to repay creditors.
- Means test: An eligibility test for Chapter 7 bankruptcy. This depends on your income, living expenses, and unsecured debts.
- Nondischargeable debt: Some debts can’t be erased in bankruptcy, like alimony, child support, tax debts, and generally student loans.
- Petition: The bankruptcy petition is the legal form that starts the bankruptcy case.
- Secured debts: Debts where the creditor has a property interest, like a mortgage payment or a car loan.
- Trustee: A bankruptcy trustee is a third party who manages the estate, collects monthly payments, and gives the money to creditors.
- Unsecured debts: Debts without a property interest, like credit card debt or medical bills.
Chapter 13 bankruptcy is known as wage earner’s bankruptcy. This means that bankruptcy laws consider you to have enough money to pay off most of your debts over time. If you can’t qualify for Chapter 7 under the means test and you have a regular income, you may be able to file under Chapter 13.
Before filing, you need to attend approved classes at a credit counseling agency. After completion, you have to file the application fee with the bankruptcy petition. The bankruptcy petition has to include forms that show your financial situation, including:
- Debts and liabilities
- All property
- Monthly living expenses
One of the best parts of Chapter 13 bankruptcy filing is the automatic stay. This temporary bankruptcy court order stops your lenders from taking further collection efforts, like garnishing your wages or foreclosure. The automatic stay typically remains in place throughout your bankruptcy proceedings.
After the Chapter 13 bankruptcy filing, the U.S. trustee holds a meeting of creditors. You have to appear and answer any questions about the plan. Once the bankruptcy judge approves the Chapter 13 plan, you generally have three to five years to comply with the repayment schedule.
If you can’t make all your payments or get too far behind in the repayment plan, the bankruptcy court may dismiss your case or convert it to Chapter 7. You may ask the court for an extension for temporary issues.
Filers must also complete a debtor education course, similar to the credit counseling course. If you made the payment plan installments, you will be discharged from any remaining unsecured creditor debt at the end of the repayment term. Some debts, like alimony and child support, are not erased in bankruptcy discharge.
This is an overview of how Chapter 13 bankruptcy works, but every case is different. Bankruptcy can also differ in every state, so it is essential to get local advice. If you want to know about your legal options for bankruptcy or bankruptcy alternatives, talk to an experienced bankruptcy attorney about your case.
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