Steps in the Chapter 13 Bankruptcy Process
The steps for filing for bankruptcy involve deciding if Chapter 3 bankruptcy, a three to five year repayment plan that allows you to keep your property, fits your situation better than Chapter 7. You’ll need to check your eligibility by confirming your regular income and that your total secured and unsecured debts fall within Chapter 13 limits. You also must confirm you’re current on required tax filings, making an inventory of your debts and assets, notifying any co-signers, completing the required bankruptcy forms, and paying the filing fee. After filing, you’ll meet with the trustee for a review and creditor questions. Next is a court confirmation hearing, where the judge either approves, modifies, or rejects your repayment plan. If confirmed, you’ll need to make timely plan payments and stay current throughout the entirety of your three to five years. After you complete your payments, the bankruptcy court issues a discharge of eligible unsecured debts.
Filing for bankruptcy can be overwhelming. Consulting a local Chapter 13 bankruptcy lawyer can help you navigate each step correctly. This article examines how a Chapter 13 bankruptcy works and what makes it different from a Chapter 7 bankruptcy case. It also outlines the steps to filing a Chapter 13 bankruptcy and explains what you must do to receive your bankruptcy discharge or repayment plan.
If you plan to file bankruptcy and have questions about the process, contact a local Chapter 13 bankruptcy attorney.
Why Chapter 13 Bankruptcy Might Be Right for You
People file for Chapter 13 for many reasons. Perhaps their home is in foreclosure, or maybe their debts have become overwhelming. A reasonable payment arrangement is the first step toward regaining financial stability.
Chapter 13 bankruptcy allows you to keep your property and pay back your debts over three to five years. It also prevents your creditors from pursuing aggressive collection activity.
Chapter 13 Bankruptcy vs. Chapter 7 Bankruptcy
In Chapter 13, you and your lawyer draft a three to five year payment plan. A trustee reviews it and, after court approval, you’ll pay a specific amount of money to the U.S. Trustee every month, who then distributes it to the creditors in a prorated fashion.
Your debts do not disappear after a Chapter 13. While the bankruptcy court will sometimes discharge unsecured debt like credit cards and personal loans, the trustee will require you to pay something to each creditor, especially those holding secured debt. You have to pay the debt in full unless the creditors may agree to a reduced amount. It all depends on your financial situation and the amount and type of debt you owe.
With Chapter 13, the trustee creates a fair repayment plan so you can gradually eliminate your debt. People refer to this type of bankruptcy as a reorganization bankruptcy because the trustee restructures your debts and payment schedules.
What Debts Will the Judge Discharge in a Chapter 13 Bankruptcy?
In a Chapter 7 bankruptcy, the court will discharge the filer’s debt so they can get a fresh start. Discharging the debt means you will no longer owe the debt, and the creditor cannot pursue collection activity or legal action.
When a debtor files for Chapter 7, they can keep certain property by reaffirming the debt and continuing to make payments. However, the bankruptcy trustee may demand you sell your assets to pay off some of your creditors.
In Chapter 13, filers can discharge some debt but must make payment arrangements on most of it. According to the U.S. Bankruptcy Code, the court may discharge the following debts after your Chapter 13 is complete:
- Credit cards
- Personal loans
- Medical bills
- Utility bills
- Civil judgments
You must make monthly payments toward these bills during your Chapter 13 plan. Once the plan is complete, the trustee will discharge the remainder of these debts.
Some of the debts you can discharge in Chapter 13 that you cannot discharge in Chapter 7 include:
- Some non-criminal government fines and penalties
- HOA and condominium fees accrued prior to filing
- Some income taxes can be discharged if timing rules are met
Some debts are not dischargeable in either type of bankruptcy. These include:
- Alimony
- Child support
- Student loans
- Mortgage arrears (you must pay these in full in your repayment plan)
- Car loans (if you wish to keep your motor vehicle)
- Administrative fees (such as the trustee fee)
- Criminal fines and restitution
- Most tax debts
These are considered priority debts. Filers must pay them in full before their repayment plan ends.
Steps in the Chapter 13 Bankruptcy Process
Now that you have a better understanding of how a Chapter 13 bankruptcy works, let’s take a look at the Chapter 13 bankruptcy process. If you don’t follow these steps, the court will likely dismiss your bankruptcy case and require you to amend or refile your petition.
Making a mistake during a Chapter 13 bankruptcy can haunt you for a long time. Even if the process seems like something you can handle, it’s a good idea to consider consulting a skilled bankruptcy attorney to help with your case.
Decide if Chapter 13 Is Right for You
Before you file your bankruptcy petition, you must decide which type of bankruptcy to file. For individual debtors, this usually means choosing between Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 is for people looking for a fresh start. The court discharges your debts, and you do not have to pay them. To be eligible for Chapter 7, you must pass a means test to show that your income is lower than your state’s median income. Be warned that a Chapter 7 bankruptcy will negatively affect your credit rating for quite some time, making it difficult to get loans or a mortgage.
With a Chapter 13, you pay your debts back over time. It’s intended for people who want to keep their assets and reduce their monthly payments. To qualify for Chapter 13, you must show sufficient disposable income to pay your plan’s monthly payments.
Calculate Your Debt
Before filing for bankruptcy, you must determine how much debt you owe. You cannot file Chapter 13 if your total combined secured and unsecured debt is at or above $2,750,000.
There is no minimum amount you must owe. Whatever your total debt, you must also be able to prove that you can afford the payments in your Chapter 13 plan. According to Chapter 13 bankruptcy law, if your total debt is too high, the court may deem you ineligible or unable to formulate a feasible repayment plan.
Weigh your income against the payment obligations set up in your Chapter 13 payment plan. If you don’t have sufficient regular income to make your payments, the court will not let you proceed.
Calculate the Total Value of Your Property
Debtors file Chapter 13 primarily because they want to keep their assets. If you don’t own any property, you may be better off filing for Chapter 7. If you have equity in your home and your car loan is almost paid off, Chapter 13 may be your best option.
Confirm That You Are Up to Date on Your Tax Returns
The court will not approve your Chapter 13 bankruptcy if you owe back taxes, unless paying your priority taxes is part of your repayment plan . You must also prove that you are current on your tax records. If you have not filed the current year’s tax forms or failed to file taxes in recent years, you will not qualify for Chapter 13. You can file tax returns for the missed years, but do so before submitting your bankruptcy petition.
Notify Any Co-Signers That You Intend To File Bankruptcy
When you file Chapter 13 bankruptcy, it impacts the people who co-signed your loans. Not only does the automatic stay protect them throughout the bankruptcy, but your repayment plan also affects them.
If you have co-signers on any secured debt and they wish to reaffirm the loan, they have the right to do so. If they do, you will not include the debt in your bankruptcy.
Complete Your Chapter 13 Bankruptcy Law Paperwork
After determining your eligibility for Chapter 13 bankruptcy, you must gather your financial information and complete the requisite forms. Make sure you have the filing fee of $313. Payment methods and online options vary by district, so check your local court’s instructions. It’s advisable to pay with either a money order or cashier’s check made payable to”Clerk, U.S. Bankruptcy Court.”
Meet With the Bankruptcy Trustee
Once the court accepts your bankruptcy petition, you must meet with the trustee handling your Chapter 13 bankruptcy case to determine your eligibility. The trustee will review your paperwork and discuss your Chapter 13 repayment plan. Your creditors may appear at this meeting to ask you questions or negotiate the terms of your repayment plan.
Attend a Confirmation Hearing
Shortly after you meet with the trustee, you will attend a confirmation hearing. This is where the bankruptcy judge will decide whether to confirm your plan. Your creditors can raise objections to your plan at this hearing, and the judge will make rulings on them.
If the judge approves your Chapter 13 plan, you will start making payments on your plan. The court will not discharge any debts until your payment plan is complete. Once finished, debts you owe to unsecured creditors are discharged. If you still owe money on your secured debts, you must pay them in full.
Make Your Payments Accordingly
Within 30 days of filing your bankruptcy, you must start making payments according to your repayment plan. Be prepared to return to court should any issues arise during your case.
Stay current on your payments. If you consistently miss payments, the judge will dismiss your case. This means that the creditors can begin trying to collect from you again.
Receive Your Bankruptcy Discharge
Once you complete your repayment plan, you must complete post-filing debtor education before the U.S. Bankruptcy Court will issue your bankruptcy discharge. This court order discharges your obligations for any unsecured debt you listed in your plan.
As long as you have made all of the promised payments and fulfilled your part of the plan, your bankruptcy will be complete.
An Experienced Bankruptcy Attorney Can Help
If you have questions or need help filing your Chapter 13 bankruptcy petition, consult a bankruptcy attorney.
You May Also Like:
- Chapter 13 Repayment Plan and Confirmation Hearing
- Exempt Property in a Chapter 13 Bankruptcy
- Filing for Chapter 13
- Difference Between Chapter 7 and Chapter 13 Bankruptcy
- After Bankruptcy
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