Nowadays more and more people face serious financial constraints. Often they think of bankruptcy as the only way to avoid falling into an abyss of unmanageable debts. Fortunately, it’s not all bad. There is an option. Moreover, it allows those with sufficient income to evade liquidation of their assets in order to pay off debts. (Image Credit: Gerd Altmann/Pixabay)
If Chapter 13 bankruptcy is a new concept, it is time to learn more. Interested parties should find out how it works and why it is considered the soft landing scenario for individuals with debts. Here is everything you need to know about Chapter 13 or the Wage Earner’s Bankruptcy.
What is Chapter 13 Bankruptcy?
Simply put, Chapter 13 of the U.S. Bankruptcy Code is an alternative to liquidation. It is designed for people who still have a stable income but struggle to meet creditors’ demands for immediate payments. The most attractive part of the plot is a chance to keep your property and other assets while paying off your mortgage under a tailored settlement plan. Generally, people receive three and five years to resolve their debts providing they apply all disposable income to debt reduction. However, timeframes can vary from case to case.
Who Can File Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is reserved exclusively for an individual, spouses filing jointly, or a business structured as a sole proprietorship. To be eligible for this option, the aforementioned debtors must have no more than $394,725 in unsecured debt. The upper limit for secured debt is set at $1,184,200 (as of 2019). As already said, a debtor must prove to the court a sufficient income. Capacity to cover the necessary payments in accordance with the proposed plan must also be provided.
Chapter 13 vs. Chapter 7
Both options are designed to help individuals save their financial problems. However, Chapter 7 will oblige you to liquidate a heck of a lot of assets to repay creditors. In the great bulk of cases, Chapter 13 is a far better variant as it lets you keep property and assets. As stated at Fight13.com, falling behind on mortgage or car loan, as well as aiming to establish manageable payments to pay off non-dischargeable debt is among the most common circumstances to file Chapter 13 bankruptcy. In addition to that, many people who want to keep ownership of business assets but do not want to use the more expensive and complicated Chapter 11 bankruptcy process also opt for the more advantageous Chapter 13 option.
Filing Chapter 13 Bankruptcy
Everything starts with filing a petition with the bankruptcy court. This means you will need to provide a hefty bunch of documents. Apart from schedules of assets and liabilities, your current income and expenditures, as well as executory contracts and unexpired leases, you will be also required to submit a number of statements: financial affairs, your monthly net income, and anticipated increase in income or expenses after filing. Sounds like a lot of paperwork about bankruptcy, but it’s far from being all as a certificate of credit counseling, evidence of payments received from employers in the 60 days before filing the petition, and record of interest on federal or state qualified education or tuition accounts are on the list too.
What’s Next?
Following the filing of your petition, a court-appointed impartial trustee administers your case. They also act as a disbursing agent between you and your creditors. Here comes a very important moment in the form of the so-called automatic stay, imposed to stop instantly the majority of collection actions against you and your property.
Debtors propose the repayment plan but creditors also have a say and may raise some objections. Anyway, the court is the one to make a final decision and determine whether your plan is fair and in compliance with the Bankruptcy Code.
To reach your goals and successfully manage your debt, stick to your settlement plan and never make late payments. However, if your financial situation changes for the worse, you can ask for the optimization of the plan. A word of warning: failure to comply with the terms can cause case dismissal.
Chapter 13 bankruptcy is a precious financial tool for people who have debts and want to keep their homes. Usually, it is the best option to avoid liquidation, handle unmanageable debts, and get back on track.