Chapter 13 bankruptcy is also known as the “wage earner plan” because it allows people with a stable and substantial income to restructure their debts and repay them over time. If you owe no more than $1,184,200 in secured debt and $394,725 in unsecured debt, filing for Chapter 13 can enable you to regain financial stability while protecting your cherished assets from seizure.
The Advantages of Filing for Chapter 13
Most indebted consumers file for Chapter 7 because the time between filing and discharge is only a matter of months and they aren’t usually required to repay any of their unsecured debt like credit cards and medical bills. Although Chapter 7 is a fast and straightforward form of debt relief, it’s not for everyone.
If you have a reliable income and/or own assets that could be seized to repay creditors in a liquidation bankruptcy, Chapter 13 allows you to repay a percentage of your debts over a three to five-year period, as well as catch up on secured or nondischargeable obligations such as:
- Student loans
- Income taxes
- Child support and alimony
- Mortgages and car loans
Other advantages include:
- You retain all personal property, including assets that you might have been required to surrender in a Chapter 7 case.
- If any of your debts have co-signers, they are protected from creditor collection actions
- If your car loan is over 2.5 years old, you can establish new payment terms
- You may be able to stay in your home if a foreclosure had been in progress
Although businesses cannot file Chapter 13, self-employed individuals can (provided that they have not incorporated), giving them the opportunity to reorganize and repay their personal AND business debts.
How the Repayment Plan Works
Under a Chapter 13 bankruptcy, you repay your creditors over three to five years. If your income is below the state median for your household size, you will probably be approved for a three-year repayment. Most filers choose the five-year schedule because the payments will be lower and therefore more sustainable.
When you and your bankruptcy attorney propose a plan, the trustee and your creditors will be given the opportunity to object to it and request changes. If there are no objections or all changes have been made to everyone’s satisfaction, the bankruptcy court will likely approve your plan if it is sustainable, meaning that you can afford the monthly repayments.
After the plan is approved, you make a single monthly payment to your bankruptcy trustee, who distributes the money to your creditors in order of priority. The amount is determined by factors such as:
- Your income
- The amount of debt that you owe
- The type of debt
- Your necessary monthly expenses
Priority debts include back taxes, child support, and spousal maintenance payments. If you have a home or car and want to keep both, you will have to repay any arrears, as well as continue making regular payments on the mortgage or car loan.
Receiving Your Discharge from Chapter 13
Once your repayment plan is complete, you will receive your discharge if you:
- Completed the court-approved financial management course
- Are current in your alimony and child support obligations
- Have not received a Chapter 13 discharge in the past two years
- Have not received a Chapter 7,11, or 12 discharge in the past four years
If you have fulfilled all your obligations, any outstanding balance on dischargeable debts like credit cards or utility bills is eliminated, leaving you with a clean slate and the opportunity to rebuild financially.
If you are considering Chapter 13 as a solution to your debt concerns, contact Rodriguez Law at (305) 262-8226. We will gladly meet with you, review your financial situation, and guide you through the best debt relief solution for your case.
