Bankruptcy and Debt



Also referred to as reorganization bankruptcy, Chapter 13 allows you to create a payment plan that is acceptable to your creditors, as well as fits within your tight monthly budget. As opposed to selling assets to fulfill debt obligations, you pay off what you owe from your monthly income. Most Chapter 13 payment plans span between three and five years, which should be enough time to right your financial ship.

Chapter 13 Eligibility Requirements

Under federal bankruptcy statutes, debtors must abide by strict guidelines to file for Chapter 13. A bankruptcy judge meticulously examines your finances to determine whether you have the capability of paying back all of your debt over a three to five year period. For example, if you owe more than $50,000 on a new vehicle and make around the same amount per year, the chances are a bankruptcy judge will move your case into a Chapter 7 bankruptcy proceeding. Moreover, only individuals and married couples qualify for Chapter 13 relief. Business owners have to file for bankruptcy under a different chapter.

The Chapter 13 Legal Process

Chapter 13 proceedings begin when a petitioner files a legal document in the area where he or she lives. Debtors filing for Chapter 13 relief then present a payment plan that spans between 36 and 60 months. A 36-month payment plan goes into effect for debtors that generate gross incomes that fall below the median income for the state in which they live. Debtors that have incomes above the median level propose a 60-month creditor payment plan. The Chapter 13 bankruptcy means test uses your income average over the previous six months.

Debtor Obligations under Chapter 13

Although Chapter 13 provides debtors with a road back to financial solvency, the process requires a razor-like focus on abiding by legal obligations. Debtors must files the right forms at the right times to fulfill Chapter 13 bankruptcy obligations. One missed filing deadline can force a bankruptcy judge to declare your Chapter 13 case null and void. You also have to remain current on filing fees and the payment schedule you set up to create a Chapter 13 plan.

Chapter 13 or Chapter 7 Bankruptcy?

Chapter 7 bankruptcy cleans your financial slate, although you must sell off some of your assets to pay off some of your debt. A Chapter 7 bankruptcy filing eliminates all of your debt. Chapter 13 allows debtors to pay back debt over the course of between three and five years. Chapter 7 bankruptcy remains on a credit report up to 10 years after a debtor files the case. Chapter 13 bankruptcy results in a blemish on your credit report that lasts no more than seven years.

Do All Debts Remain After a Chapter 13 Discharge?

Several types of debt do not under fall under Chapter 13 bankruptcy law. For example, you cannot make arrangements to pay of alimony and child support. You also have to settle criminal fines and any educational loans you have to pay back. Long-term debt, such as a home mortgage, typically does not fall within Chapter 13 guidelines. Any money that you owe the IRS also does not qualify for a Chapter 13 debt payment plan.

The complex nature of Chapter 13 bankruptcy requires the expertise of an experienced team of bankruptcy attorney. We help clients create Chapter 13 plans that allow them to restore good credit ratings. Contact our office today to set up an appointment for receiving a free consultation.

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