Unlike other types of bankruptcy, in Chapter 13 you pay back at least some of your debts and bills through a repayment plan to obtain the discharge order. While this might seem like a disadvantage since your debt is typically discharged under Chapter 7 bankruptcy, there are benefits to filing Chapter 13 and restructuring your debt.
What Is Chapter 13?
Chapter 13 is for individuals who have enough regular income to pay off at least some of their debts – but who just can’t afford to pay it all off at once. This can also be an option for people who own property and who don’t want to have to liquidate it through bankruptcy.
Instead, through Chapter 13 bankruptcy, debtors can pay back their debt through payment plans. This lets the filer eliminate their debts through more affordable monthly payments.
Only individuals can file for Chapter 13 bankruptcy.
To file for Chapter 13 bankruptcy, you must prove that you have the financial means to complete what is typically a three to five repayment plan, though there can be exceptions to this.
Benefits of Restructuring Your Debt
Restructuring your debt through Chapter 13 and completing a repayment plan can have many advantages over filing Chapter 7. Some of the top benefits can include:
Keep your property: Under Chapter 13, you can typically keep your property. This can include your home, vehicle, and other personal assets. This is different from Chapter 7, where non-exempt property may be liquidated.
Stop foreclosure: If you are behind on your mortgage payments, Chapter 13 may be the best solution for you to stop foreclosure and repay the mortgage arrearage balance. This can allow you to repay your missed payments through the repayment plan instead of losing your house through foreclosure or liquidation in Chapter 7 or other types of bankruptcy.
Reinstate your driver’s license and eliminate traffic ticket balances: If your driver’s license is suspended solely due to unpaid traffic tickets, Chapter 13 allows you to quickly get your license reinstated while paying off some portion of the ticket balance through the case.
Pay spousal support arrearages: Chapter 13 requires that domestic support arrearages (think alimony and child support) be paid as part of the case. This can be an efficient way to resolve this type of debt through a payment plan that resolves other debts as well.
Car loan interest payment reduction: If you are paying your vehicle off at an outrageous interest rate (and this office regularly sees 34.99% for some car loans), Chapter 13 allows this interest rate to be substantially lowered while still keeping your vehicle.
Negative Equity reduction: If your current car loan includes negative equity from your prior car loans (for instance, the lender added $10,000 to your current car balance to pay off of your prior car), in most instances, this $10,000 can be removed from the car balance in Chapter 13 cases while still allowing you to pay off the car and obtain title after the bankruptcy.
End harassment from creditors: Are you being harassed by creditors who are trying to get you to repay your debts? As soon as you file your Chapter 13 paperwork, they are required to stop debt collection efforts. If they do not stop, then your bankruptcy attorney can work with the court to stop their collection attempts.
Restore your credit: When you pay off your debts through a Chapter 13 repayment plan, it will help restore your credit score and lending ability sooner than if you filed for Chapter 7 bankruptcy. Lenders will look more favorably on you having paid back your debts rather than having them discharged.
Payback debts in an affordable way: Chapter 13 lets you restructure your payments to make your monthly payments lower and more affordable This lets you pay off your debts without being overly strained each month financially.
How Chapter 13 Repayment Plans Work
When you file for Chapter 13 bankruptcy, you will need to submit a repayment plan to the court for approval and being to make payments starting each month after you file the case. Once the plan is approved, you continue to submit monthly payments to the Chapter 13 trustee. These plans typically take three to five years to complete, though it can be shorter in certain limited instances. At the end of the repayment plan, the Chapter 13 bankruptcy will be finalized.
Throughout the Chapter 13 bankruptcy, several steps must be taken, including attendance at a 34!(a) Meeting of Creditors. At this meeting, the trustee , you, and your creditors (if they bother to show up) discuss the repayment plan. You will need to meet with your bankruptcy attorney before this to ensure you know what to expect during this meeting.
You will also need to complete Credit Counseling. You will need to undergo credit counseling and show a certificate of completion before proceeding with your bankruptcy.
Let Us Help You
If you are considering filing for Chapter 13 bankruptcy, let our lawyers at The Law Offices of Alexzander C.J. Adams, P.C. help prepare you for what to expect and explain the benefits of restructuring your debt. We work for you, the people, and not institutions. Contact us for a free case evaluation, or no-obligation consultation. We are dedicated to helping you overcome this small bump in the road and assisting you to get on with your life.