What Is Chapter 13 Bankruptcy?

Bankruptcy filing often brings to mind a situation where someone loses everything they have. But in fact, both Chapter 7 and Chapter 13 Bankruptcy are meant to prevent this from happening. If a petitioner has assets which they will want to keep, most significantly property used as a primary residence, filing for Chapter 13 Bankruptcy may be preferable to Chapter 7 Bankruptcy.

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Chapter 13 Bankruptcy is a legal reorganization of debt with a repayment plan. The Repayment Plan must be approved by the Bankruptcy Court, which also oversees the proceedings. Consistent payments are necessary to have the bankruptcy petition discharged at the end of the repayment period.

In some cases, a petitioner can choose to switch from Chapter 7 Bankruptcy to Chapter 13 Bankruptcy or vice versa. This can be influenced by the means test or a desire to hold on to, or give up, certain assets or properties.

We Can Help You With Chapter 13 Bankruptcy

The Walker Law Firm works with bankruptcy cases throughout the Greater Dothan, Alabama area and can offer you advice on whether filing for bankruptcy might be right for you. The Walker Law Firm is a Debt Relief Agency. Chapter 13 Bankruptcy offers a legal means to stop the debt collection process and set up a debt repayment plan.

Income and Your Bankruptcy Repayment Plan

Chapter 13 is a longer and more complicated process than Chapter 7 Bankruptcy. Because Chapter 13 Bankruptcy requires a repayment plan, you must have a steady income. For this reason, Chapter 13 is sometimes known as the "wage earners plan". Your income taxes and any payments owed for them must be current and on time in order to file.

There are also limits on how much debt you can owe under Chapter 13. According to bankruptcy law, the total amount of your unsecured debts, such as credit cards, personal loans, and payday loans, cannot be more than $394,725 and you can not have more than $1,184,200 total in secured debt which would include a home mortgage as well as a car loan.

Advantages to Filing Chapter 13

  • You don't have to give up any property
  • Chapter 13 gives you an opportunity to catch up on your late mortgage and car payments.
  • Non-dischargeable debt as as money owed for taxes or domestic support can be paid back through the Chapter 13 Bankruptcy repayment plan
  • You will have more time to pay back your creditors, while they are not allowed to contact you for debt collections.

Mortgage and Foreclosure Under Chapter 13 Bankruptcy

If you are facing foreclosure or if the foreclosure process has already started, Chapter 13 Bankruptcy may help you keep your home. If you think you would be able to resume making payments, the payments can sometimes be reduced as part of the debt repayment plan approved by the Bankruptcy Court.

The repayment plan lasts from 3-5 years as part of the bankruptcy process depending on your income. You will be able to keep your home as long as all payments are made under the terms of the repayment plan. In some cases the mortgage related debt can be discharged.

If you are a resident of Alabama and own a home, you should know that Alabama is what is known as a non-judicial foreclosure state. This means is that a mortgage holder to take back the house or property without having to obtain a court order. There are very few defenses to a foreclosure in Alabama but filing for Chapter 13 Bankruptcy will halt the foreclosure and sale of your home at auction.

Bankruptcy lawyers can help you stop the foreclosure process immediately. If you own a home in Alabama and think that you may be in danger of foreclosure or are already in foreclosure, you need to contact a Bankruptcy Lawyer right away.

Keep Your Car With Chapter 13 Bankruptcy

If you are behind on your auto loan payments or in danger of having your car repossessed, Chapter 13 Bankruptcy can help you keep your car. The automatic stay will ensure that the car cannot be repossessed for a period of time. But since the auto loan is a secured debt, meaning that the car itself is collateral, you will need to reaffirm the auto loan and pay back any past due amounts in order to keep the car.

With Chapter 7 Bankruptcy, this may not always be the most practical decision. Under Chapter 13 however, the remaining or most of the remaining payments and any past due amounts owed can be included the the debt repayment plan.

What Happens To Your Debts Under Chapter 13 Bankruptcy?

The Automatic Stay Stops Nearly All Collection Activity Right Away

When you file for bankruptcy the Automatic Stay halts nearly all debt collections, including most wage garnishments, as well as mortgage payments. This is available for both Chapter 7 and Chapter 13 Bankruptcy.

By law, debt collectors are not allowed to contact you for the purpose of collecting, negotiating, or settling your debts once your bankruptcy petition is filed. For unsecured debts such as credit cards, personal loans, medical bills, and even payday loans, the Automatic Stay remains in effect until the bankruptcy is discharged.

Under the Automatic Stay, creditors are not allowed to pursue any of the following activities:

  • Call, send letters, texts, or emails regarding any outstanding bills or payments that you owe
  • Repossess your car or any other secured property
  • Foreclose on your home or continue the foreclosure process if it has already been filed
  • File or continue a lawsuit for any collections owed
  • File or continue with any wage garnishments
  • Place a lien on your property

The Automatic Stay against debt collection activity remains in place throughout the term of the bankruptcy proceedings but once a repayment plan is approved of by the Bankruptcy Court, payments for the mortgage must resume.

Exempt and Non-Exempt Assets Under Chapter 13 Bankruptcy

The goal of your debt repayment plan is to allow you to keep all of your property including your house and car while you repay all of your debts to your creditors. Under the Chapter 13 repayment plan you are generally not required to sell any property to pay your debt, but if you own significant amounts non-exempt property then your monthly payments to your creditors under your repayment plan are likely to be higher.

The Trustee or Administrator overseeing your bankruptcy case can sell off non-exempt property to pay your unsecured debts if your income isn't high enough to include some of these debts in your repayment plan. But a plan that relies too much on the selling off of non-exempt assets in order to pay outstanding debts may not be approved by the Bankruptcy Court.

The Homestead Exemption

Under federal bankruptcy law, a certain amount of equity in your home is considered exempt and protected from being sold off to pay your creditors. This is known as the Homestead Exemption and the amount varies by state. If you are living in Alabama, contact an attorney familiar with the bankruptcy laws in Alabama for more information on how much of your home equity would be protected by the homestead exemption under Chapter 13.

What possessions of mine are exempt according to bankruptcy law?

Basic household possessions and some of the equity in your car are considered exempt and protected under Chapter 13 Bankruptcy.

Luxury items, high value collectibles, or vacation homes however are not protected. Under bankruptcy law, most retirement accounts are fully exempt and protected from creditors.

The Trustee and Administrator

When you file for bankruptcy your case will be assigned to a Trustee acting under the U.S. Trustee Program and will oversee your bankruptcy proceedings. The only exceptions being in the states of Alabama and North Carolina where bankruptcy cases are overseen by the Bankruptcy Administration. In these states a Bankruptcy Administrator oversees your case.

If you live in Alabama, contact one of the most experienced bankruptcy attorneys serving the Dothan, Alabama area for more information on how this could affect your case. The Walker Law Firm offers a free consultation.

Your Chapter 13 filing must include:

  • The names of all of your creditors and how much you owe to each one of them
  • A list of your property, valuables, and assets including financial accounts
  • Documentation of all sources of income
  • Your monthly living expenses
  • Your recent tax information including tax returns and statements of any amounts owed for back taxes
  • The certificate of completion for your credit counseling course

You will also need to submit your proposed Chapter 13 repayment plan for your debts to the court within 14 days of filing your petition. Missing, outdated, or incorrect information can cause your case to be delayed or even dismissed. For this reason, you may want to consider consulting or retaining a skilled bankruptcy attorney to help ensure that all of the necessary information and documents are correctly filed with your bankruptcy petition.

As with Chapter 7, Chapter 13 Bankruptcy requires that credit counseling and debtor education courses be completed. These courses are intended to gauge whether bankruptcy might be right for you and to help with personal finance strategies to avoid getting into debt again.

Many accredited credit counseling and debtor education courses can be taken online.

Your bankruptcy attorney would likely be able to recommend an agency that can help you complete these courses. Credit counseling can also help you determine whether there are alternatives to filing bankruptcy such as debt consolidation, an out of court repayment plan, or refinance options.

What is A 341 Meeting?

The 341 Meeting, also known as a Meeting of the Creditors will be scheduled with the Bankruptcy Trustee or Administrator as you bankruptcy case proceeds. You will meet with the Trustee or Administrator at this meeting and your bankruptcy lawyer will be there with you if you have one.

At this meeting you will swear under oath that the information that you provided in your Chapter 13 petition is true.

You will need to verify your identity and you will be asked questions about your debt repayment plan. You will also be asked a number of questions by the Trustee based on the information you provided in your bankruptcy petition. The Trustee or Administrator will also want to confirm that you have taken both the Credit Counseling and Debtor Education courses as required under bankruptcy law.

The 341 Meeting is not a trial but it is a legal proceeding that requires you to swear under oath. Consider having a lawyer experienced with bankruptcy at your side for the 341 Meeting as well as the entire bankruptcy process.

Chapter 13 and Your Debt Repayment Plan

Within 45 days of your 341 Meeting a confirmation hearing will be held where a bankruptcy judge will determine whether you can proceed with your repayment plan under Chapter 13. The bankruptcy judge mostly needs to make a decision on whether your plan is feasible according to the information that you submitted, and that your plan is in compliance with Bankruptcy law and filed in good faith.

The length of a repayment plan under Chapter 13 is based on your income. If your income is below the median income in your state your plan will last for 3 years. If your income is above the median amount then you are required to use the 5 year plan to pay back your debts.

Even if you have not gotten an answer from the Bankruptcy Court regarding your repayment plan, you are expected to start making the payments on the plan 30 days after you initially file for bankruptcy.

An attorney experienced with bankruptcy may be able to give you an idea on whether your repayment plan will be accepted by the Court.

If your bankruptcy repayment plan is approved you will make your monthly debt payments directly to the Trustee or Administrator who will then make the payments to your creditors.

Depending on your circumstances your repayment plan under Chapter 13 may include your mortgage payment along with any past due amounts owed and it other cases you might continue to pay your mortgage lender directly and pay off any back due amounts through your repayment plan. Either way, it is essential that you keep to the terms of the repayment plan or your mortgage if you continue to pay your lender directly.

Failure to keep your payments current could put you in danger of having your Chapter 13 Bankruptcy case dismissed or converted to a Chapter 7 case. In some cases you may be able to modify your agreement if your financial situation gets worse but you need to stay in touch with the Trustee or Administrator and let them know if there is a problem.

You also do have the option to accelerate your payments and having your bankruptcy discharged early.

According to your Chapter 13 repayment plan, the cost of the bankruptcy proceeding and any taxes you owe take priority followed by debts secured by collateral, like your house and car. Unsecured debts, such as credit card debt, medical bills, and payday loans need to be paid during the term of the repayment plan but sometimes any amounts remaining after completion of the plan can be discharged.

Also, it is important to note that not all debts can be discharged under Chapter 13.

Any debts incurred as a result of fraud or for child support are not discharged under bankruptcy law. In most cases student loan debt or money owed to the IRS for back tax payments are not dischargeable according to the bankruptcy code. An attorney experienced with Chapter 13 Bankruptcy would be able to answer your questions what if any debts could be dischargeable under Chapter 13 Bankruptcy.

How long does my Chapter 13 filing stay on my Credit Report?

Unlike Chapter 7 which stays on your credit report for 10 years, Chapter 13 will remain on your credit report for 7 years after your case is discharged. Having any bankruptcy filing on your credit report and can make it difficult to borrow since lenders may see you as a risk. But when you file Chapter 13, you are not allowed to borrow, apply for loans, or attempt to get any additional credit under the terms of the repayment plan for the duration of the your bankruptcy case. In certain cases the Bankruptcy Court will allow you to apply for a loan or otherwise obtain credit, but only under certain circumstances such as an emergency.

Considering Chapter 13? Before You File Go It Alone, Contact the Walker Law Firm

Since Chapter 13 Bankruptcy is as complicated legal process it is highly recommended that you have a skilled and experienced bankruptcy attorney working for you.

Maybe you are thinking about bankruptcy but not sure whether to file Chapter 7 or Chapter 13 Bankruptcy. A bankruptcy lawyer experienced with Chapter 7 and Chapter 13 Bankruptcy can help you figure out what would work best for your situation. Clarke Walker has 10 years of experience helping residents of the greater Dothan, Alabama area with bankruptcy and debt relief. Clarke Walker is dedicated to his Chapter 7 and Chapter 13 Bankruptcy clients, see for yourself.

Contact the Walker Law Firm for a FREE bankruptcy consultation!

The Walker Law Firm is located in the heart of Dothan, Alabama. Dothan, Alabama offers the following places to visit and explore such as the Adventureland Theme Park, George Washington Carver Interpretative Museum, Wiregrass Museum of Art, Water World, and more.