Posted on: 21 October 2015Share
If you have a steady paycheck but are facing foreclosure and/or are far behind on other debt payments, you should consider filing for Chapter 13 bankruptcy protection. Unlike chapter 7 bankruptcy, in which all of your debts are discharged (forgiven) but you must surrender your assets, including your home, you can keep your home and assets under a chapter 13 plan, but you must repay a portion of your debts.
How does chapter 13 bankruptcy work?
This type of bankruptcy is called the "wage earner's plan" because it requires a consistent form of income to make structured payments that are determined by the bankruptcy court. If you are facing foreclosure, you are allowed to keep your home, but you must continue to pay future mortgage payments on time, and must make arrangements to repay any missed payments in manageable installments.
You can also keep your car, but you must renew your contract with the lender and make timely payments or it can still be repossessed. You must repay the full amount of the loan for a newer vehicle, but you may be able to negotiate for a reduced balance for an older model.
This dissuades individuals from purchasing a new vehicle just before filing for chapter 13 bankruptcy and expected a reduction in repayment to be granted by the court, and also takes depreciation of value into account. Other secured debts may also be renegotiated in this manner, but the lender must be paid in full within the mandated three or five years unless a negotiated arrangement can be made for a smaller mount.
Other debtors will be paid in structured payments for three years if the individual earns less than the state median income, and five years for those making more the median income. Payment amounts will be determined by the income of the filer, and distributed by the court to individual lenders according to the amount owed to each lender. This will require reduction of the debt in most cases.
After the payment period has ended, all debts are considered paid, and no further action can be taken by the creditors that are not associated with your home or vehicle.
How do you file for chapter 13 bankruptcy?
You must file the chapter 13 bankruptcy forms, along with supporting documents, with your local federal bankruptcy court. The forms can be downloaded online on the federal bankruptcy court website or found in office supply stores. Supporting documents will include documentation such as:
List of creditors
You will need to include the names and addresses of each creditor and the amount owed. You will also be required to contact each creditor to inform them of the bankruptcy filing.
Proof of income
This will include proof of current income as well as the prior year's tax returns.
List of personal property
If you have extensive assets, you may need to surrender some assets to repay your debts.
List of monthly personal expenses
You must also pay court costs and filing fees which total around $300. The only debts that can't be included in a bankruptcy filing are federal student loans, federal taxes, and the bankruptcy fees.
You will need to receive verifiable credit counseling with an accredited credit counseling service within six months of filing for chapter 13 bankruptcy. Any payment plans developed from the counseling session will be used by the court if acceptable.
A trustee will be appointed by the court to handle the case and the disbursement of payments after the case is finalized. A meeting of creditors will take place within several weeks after the filing, during which the debtor or their attorney must meet with the creditors to answer questions or make arrangements for secured property.
Bankruptcy proceedings can be intimidating and complicated, and while individuals can file for chapter 13 bankruptcy, bankruptcy attorneys can do everything from filling in the proper forms, contacting creditors, and negotiating with creditors at the meeting of creditors in court. They are familiar with the procedures and will often have previous dealings with the creditors themselves.
For further assistance, contact a local bankruptcy attorney, such as one from Reppe Law Office.