Chapter 13 bankruptcy is a way to restructure your debt as opposed to Chapter 7 which wipes away debt. A means test is required to determine which type of bankruptcy you may file. If it is found that you have the means to pay off your debt within 5 years, then you will need to file a Chapter 13 bankruptcy. Even if you qualify for a Chapter 7 bankruptcy filing, you may find it in your best interest to file for Chapter 13 bankruptcy instead. Some reasons to choose Chapter 13 bankruptcy include:
- Being able to keep your nonexempt property
- Having a plan to make up missed payments on mortgage or car loans
- If you have a debt that cannot be discharged in Chapter 7 bankruptcy, such as student loan debt, Chapter 13 bankruptcy allows you to pay back over time
- Chapter 13 bankruptcy allows any codebtors you have to be left alone by creditors as long as you are following your plan. If you file a Chapter 7, the creditors can go after codebtors for payment
- If you want to pay back your debts for any reason, including if creditors are coming after you
Before you undertake this complicated task on your own, contact me, your bankruptcy expert. I will review your finances, debt, and assets and help you navigate your options within the federal court.
Details of Chapter 13 Bankruptcy
Relating to Individuals
In order to file a Chapter 13 bankruptcy, you must earn a steady income. In most cases that means being employed, but in some instances you may still file for Chapter 13 bankruptcy if you are unemployed. You must be able to prove that you have means to pay your debts. This would include unemployment compensation, social security, or perhaps income from a rental property. The court will restructure your debt and setup a 3 to 5 year repayment plan. Some debts are deemed “priority debts” and must be paid in full. Examples of priority debts are wages owed to employees, child support, and certain tax obligations. The plan will also include your regular payments on secured debts. This would include car loans and mortgage payments. After these payments, the plan will show any disposable income you have left. This disposable income will go towards any unsecured debts. Which do not have to be repaid in full.
Relating to Business
Although a business cannot file for a Chapter 13 bankruptcy, a self-employed sole proprietor may file. The filing must be done under the individual’s name and not the business name. The repayment plan setup by the courts must include repayment of secured and priority debts in full, along with a plan to use leftover disposable income to pay living expenses plus unsecured debt (which depending on a few factors, may or may not need to be paid in full).
Tips for Filing Chapter 13 Bankruptcy
The filing process for Chapter 13 bankruptcy can be quite tedious and complicated. Every individual has a unique financial situation. Gathering all your financial documents in preparation of filing is very important; so is being completely honest about your finances and debts. If information is incomplete or untrue it could cause complications with your filing. It is recommended to seek representation from a knowledgeable attorney. Do not undertake the task alone when your assets are on the line. We will walk you through the process of taking the means test, reviewing your finances, and filing for Chapter 13 bankruptcy.