Want to get rid of large amounts of debt? Everyone knows that Chapter 13 bankruptcy is a smart choice for people with a regular source of income. This bankruptcy type is also known as a wage earner’s plan or reorganization bankruptcy.
Still wondering how does Bankruptcy Chapter 13 work? Well, people can protect their assets and repay the debt in a given time period. They can create a repayment plan and clear all or some debt in 3 to 5 years. The actual length of the plan will depend on their overall income.
This straightforward guide will discuss all the in-depth details of the Chapter 13 bankruptcy. You can analyze till the end if it is the right choice for you or not.
How Does Chapter 13 Bankruptcy Work
The Filing Process
This section covers everything about how does chapter 13 works. Begin the process with the submission of a petition to the bankruptcy court. In this, you have to provide a complete list of debts, expenses, income, and assets. Just stay completely transparent about your financial condition. It will help you qualify for the eligibility and create a proper repayment plan.
If a couple files for bankruptcy, then all the financial details of the non-filing spouse must be part of the filing process. It helps the court to evaluate the financial position of the household.
Once your petition is accepted in the court, the automatic stay will go into effect. It will stop all the collection efforts from your creditors. You can stay stress-free and focus on creating a proper repayment plan.
Creating A Repayment Plan
You can easily pay the full debt through a repayment plan in 3 to 5 years. Your income decides the amount of debt and length of the entire plan. You can calculate it by subtracting the necessary living expenses from your monthly pay. There are different types of claims like priority, secured, and unsecured. You have to pay the priority and secured claims in full. You can pay a partial amount of debt to unsecured creditors.
You have to submit the plan within 14 days of filing the bankruptcy. Then you have to wait for its approach by the court and your creditors.
Role Of The Trustee
A bankruptcy trustee reviews your repayment plan. He/She makes sure that it complies with all the laws. Also, it should offer fair payment to all the creditors. After successful approval of your petition, the trustee will collect the payment and distribute it among the creditors. He/She will follow the terms of the plan for proper distribution.
Besides this, the trustee will monitor your progress through the period of the repayment plan. If you face any medical emergency or a sudden change in financial situation, then he/she can modify the repayment plan accordingly.
Benefits Of Chapter 13 Bankruptcy
Debt Reorganization
People can easily reorganize all their debt and repay it with a realistic payment plan. This way, you don’t have high pressure from the creditors. You get secured from paying the total debt amount upfront. This flexible plan spreads the payment over a well-structured plan for several years. Also, many times, the unsecured debts can get reduced or even discharged at the end of the repayment plan.
Protection Of Assets
The best thing about this type is you can protect your assets which is not possible in Chapter 7. You can keep your valuable assets and repay the debt in monthly payments. You can catch up on your bills without losing the asset.
Eligibility and Requirements for Chapter 13
Income and Debt Limits
You must have a regular source of income to apply for Chapter 13. The debt limits change over time. The total debt limit is $2,750,000. The total debt includes the secured and unsecured debt. In case your total debt exceeds the limit, then you cannot apply for this type. You have to look for other options.
Credit Counseling Requirements
You have to complete credit counseling to apply for Chapter 13 bankruptcy. It is a basic necessity of the type. You have to complete it before applying for the petition. Also, you have to take a session from a government-approved agency within 180 days. The session will help you find other possible alternatives to avoid bankruptcy. You can create a personal budget plan to avoid bankruptcy.
The counseling session lasts for 60-90 minutes. You can complete it through an online platform, by phone, or in person. For phone/online mode, you have to take a test to complete the session. You must score 70% or above to pass the test. You will get a certificate after the successful completion of the session. You have to file it with your bankruptcy petition. If you fail to do so, then your petition will be dismissed.
Once the repayment plan is approved, you have to complete a debtor education course. You will learn to handle your finances responsibly. You will learn about your past mistakes and get tips to avoid them. This will help you prevent falling into bankruptcy situations in the future.