Chapter 13 Bankruptcy Filing
Filing a bankruptcy petition may seem an intimidating process. One can get lost in all the technicalities and legal jargon if unprepared. Before you start filing your bankruptcy petition, you must be armed with adequate information as to which bankruptcy chapter is right or feasible for you. If you are a regular income earner, you can file your bankruptcy petition under Chapter 13. This way, the repayment schedule will not only be easier for you but more affordable.
Video: What is Chapter 13 (Reorganization) Bankruptcy?
Definition of Chapter 13 Bankruptcy
Known as the wage earner’s plan, Chapter 13 bankruptcy makes it possible for people with regular source of income to strategize a plan to pay part or their entire debt. Under the proviso of Chapter 13, debtors propose a repayment scheme to their creditors within periods of three to five years. Once a debtor’s present monthly income is below the state median, the repayment plan will be only for three years except if the court approves a longer period once they see it fit. On the other hand, once the debtor’s monthly income exceeds the state median, the repayment plan is usually approved for five years. No such case exists where the repayment plan exceeds five years. During this period of repayment, creditors are prohibited by law to initiate or pursue collection from such debtors.
Chapter 13 Bankruptcy Process & Expectations
The Chapter 13 bankruptcy process is commenced by filing a petition with the bankruptcy court having jurisdiction where the debtor holds domicile or residence. According to the United States Courts, the basic documents that a debtor applicant must prepare are: (1) a schedule of assets and liabilities; (2) a schedule of current income and expenses; (3) a schedule of executor contracts and unexpired leases; (4) a statement of financial affairs; (5) a certificate of credit counseling and a copy of any debt repayment plan as a result of credit counseling; (6) proof of payment received from employers within 60 days prior to filing bankruptcy, if any; (7) a statement of monthly net income and ay anticipated increase in income or expenses after filing; and (8) record of any interest incurred by the debtor in federal or state qualified education or tuition accounts. The applicant debtor must provide the Chapter 13 case trustee with a copy of tax return or transcripts available for the most recent tax year. The tax returns filed as the bankruptcy case progresses must also be filed with the case trustee. If you have unfiled tax returns in previous years before the case commenced, copies of those should be given to the case trustee as well.
Eligibility
Any individual may apply for Chapter 13 bankruptcy; even those who are self-employed or running an unincorporated business may be eligible for application. In order for you to qualify, your unsecured and secured debts must be less than $336,900 and $1,010,650, respectively. These amounts may vary in the future, since these are based on the prevailing consumer price index. However, juridical persons like corporations and partnerships cannot be eligible for filing Chapter 13 bankruptcy.
Advantages
When compared to Chapter 7 bankruptcy, Chapter 13 is more lenient to debtors, as far as liquidation is concerned. As explained by the United States Courts, in Chapter 13 bankruptcy, your home can be spared from garnishment. Through this chapter of bankruptcy, you can still save your home by paying mortgage due over a fixed period of time. Another benefit this chapter provides is the opportunity to reschedule payment for secured debts, in consonance to the payment duration of the Chapter 13 bankruptcy plan. This way, there is a greater possibility for payment schedules to have lower amounts, hence more affordable for debtors. Chapter 13 bankruptcy also extends protection to debt co-signers.
Disadvantages
The disadvantage of Chapter 13 lies in previous bankruptcy history of the applicant debtor. If a debtor has, 180 days prior to filing the Chapter 13 bankruptcy, willfully failed to appear in a previous bankruptcy petition or comply with orders of such court and such petition or the petition was voluntarily dismissed as when the creditors sought such relief from the bankruptcy court to retrieve property upon which they have lien rights. Another disadvantage is this chapter cannot apply to those who have not resorted to credit counseling from an approved agency prior to application for bankruptcy.
Video: Understanding Chapter 13 Bankruptcy
Changes in Laws
As stated, your home can be spared from garnishment when filed under Chapter 13 bankruptcy if you follow through on your repayment plan. Nevertheless, your home can still be exempted under homestead or on your marital property regime. However, the new bankruptcy law regulates the homestead provision of not more than $125,000 of such home was acquired 40 months prior to the filing or if the applicant debtor has resorted to fraud.
Additional Information and Pertinent Forms
For more information on securing the required forms , you can go to the United States Courts’ web site and download these online. Such forms are not available from your court of jurisdiction. The alternative would be to purchase these at legal stationery stores.
Disclaimer
These forms are not for sale. Official forms are readily available for free by downloading them from the United States Courts’ web site.