Chapter 13 Bankruptcy
If a petitioner has assets which they will want to keep, most significantly property used as a primary residence, filing for Chapter 13 may be preferable to Chapter 7.
Chapter 13 is a reorganization of debt with a repayment plan that is approved of, and overseen by, the Bankruptcy Court. 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 or vice versa. This can be influenced by the means test or a desire to hold on to certain assets or properties.
We Can Help With Your Chapter 13 Bankruptcy
The Walker Law Firm works with bankruptcies throughout the Greater Dothan, Alabama area and can advise you on whether bankruptcy might be right for you.
Can I File For Chapter 13 Bankruptcy?
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. Because if this, Chapter 13 is sometimes know as the "wage earners plan". Your income taxes and any payments owed for them must be current and on time.
There are also limits on how much debt you can owe under Chapter 13. The total amount of your unsecured debts, such as credit cards and personal loans cannot be more than $394,725 and you can not have more than $1,184,200 in secured debt like a home mortgage or car loan.
Since Chapter 13 Bankruptcy is as complicated legal process it is highly recommended that you have a skilled and experienced Chapter 13 Bankruptcy attorney working for you.
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 repayment plan
- You will have more time to pay back your creditors, while they are not allowed to contact you for debt collections.
Mortgage Loans and Foreclosure
If you are facing foreclosure or if the foreclosure process has already started, Chapter 13 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 a repayment plan approved by the Bankruptcy Courts.
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 bankruptcy agreement. Sometimes the mortgage related debt can be discharged and reduced permanent payments can be negotiated.
What Happens 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, and mortgage payments. By law, debt collectors are not allowed to contact you for the purpose of collecting, negotiating, or settling your debt with them after 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
The goal of your repayment plan is to keep all of your property including your house and car and 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 are likely to be higher.
The Trustee or Administrator overseeing your Chapter 13 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 on too much on the selling off of non-exempt assets 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 Chapter 13 Bankruptcy laws in Alabama if you wondering how much of your home equity would be exempt under Chapter 13.
What possessions of mine are exempt?Basic household possessions and some of the equity in your car are considered exempt and protected under Chapter 13. Luxury items, high value collectibles, or vacation homes however are not be protected. Under bankruptcy law, most retirement accounts are fully exempt and protected from creditors.
The Trustee and Bankruptcy 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 an experienced Chapter 13 Bankruptcy attorney serving the Dothan, Alabama area for more information on how this could affect your case.
Your Chapter 13 Bankruptcy 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 bankruptcy court within 14 days of filing your bankruptcy petition.
What is A 341 Meeting?
The 341 Meeting, also known as a Meeting of the Creditors is scheduled. You will meet with the Trustee at this meeting and if you have a bankruptcy attorney for your case, your attorney will be there with you.
At this meeting you will swear under oath that the information that you provided in your Chapter 13 filing is true. You will likely 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 and will also be required to confirm your identity.
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 an experienced with Chapter 13 Bankruptcy at your side for the 341 Meeting as well as the entire Chapter 13 Bankruptcy process.
Debt Repayment Plans under Chapter 13
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 Chapter 13 Bankruptcy law and filed in good faith.
The length of a repayment plan under Chapter 13 is based on the your income under bankruptcy law.
Debtors whose income is below the median income for households of that size in your state your plans will last as long as 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
If your 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 you your repayment plan under Chapter 13 Bankruptcy 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 repayment plan and your mortgage if you continue to pay your lender directly.
Failure to keep your payments current could put you in danger of having your bankruptcy case dismissed or converted to a Chapter 7 Bankruptcy. 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 cards and medical bills 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 bankruptcy law. Any debt for 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.
How long does my Chapter 13 filing stay on my Credit Report?
Unlike Chapter 7 Bankruptcy which stays on your credit report for 10 years, your Chapter 13 Bankruptcy will remain on your credit report for 7 years after your case is discharged.
Maybe you are thinking about bankruptcy but not sure whether to file Chapter 7 or Chapter 13 Bankruptcy. A bankruptcy attorney 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 Dotham, Alabama area with bankruptcy and debt relief. Before you decide to go it alone, contact the Walker Law Firm for a FREE bankruptcy consultation!