Chapter 13 is a debt adjustment or debt reorganization bankruptcy and is intended for individuals who have sufficient income to pay their debt over time. It is sometimes referred to as a wage earner’s plan and includes creation of a plan to repay all or part of your debt. Repayment plans cover a 3 or 5 year period dependent on whether your income is above or below the North Carolina state median. During the time of the repayment plan, creditors are barred from starting or continuing collection efforts against you.
Dependent on your circumstances, there are distinct advantages to Chapter 13 over Chapter 7’s liquidation of property. Most significantly, Chapter 13 offers the opportunity to save your home from foreclosure. Under Chapter 13, foreclosure proceedings are halted, and a plan is created to cure the delinquent mortgage debt the period of your repayment plan. Mortgage payments must be made in a timely fashion during the Chapter 13 plan.
Advantage of Chapter 13
“Chapter 13 may allow you to save your home from foreclosure.”
Another advantage of chapter 13 debt reorganization is that it allows rescheduling of most secured debt to be extended over the life of the Chapter 13 repayment plan, potentially allowing for lower monthly payments. Chapter 13 gives special consideration to third party co-signers, and can possibly protect them from liability incurred through your bankruptcy. In many regards, Chapter 13 is similar to consolidation loan. Payments get made to a trustee, who distributes payments to creditors, providing protection from contact or harassment from creditors during the pendency of your repayment plan.
There are some limitations to eligibility for Chapter 13 debt reorganization. Your secured and unsecured debts must not surpass certain thresholds. Like Chapter 7 liquidation, you cannot have had a Chapter 13 petition dismissed during the preceding 6 months. You must also receive credit counseling before filing.
Starting a Chapter 13
Like Chapter 7, Chapter 13 begins with the filing of a petition with the United States Bankruptcy Court where you live or where your business’s principal office is located. Other documentation has to be included with the petition for bankruptcy, including schedules of:
- assets and liabilities
- income and expenditures
- contracts and leases
- financial statements
Additional documentation must be filed with the Chapter 13 trustee, including:
- the consumer credit counseling certificates of attendance
- evidence of payment from your employers
- a statement of monthly net income
- any anticipated increase in income or expense after filing
- tax returns
The court charges a $310 filing fee and $46 miscellaneous administrative fee.
Completing the Official Bankruptcy Forms
In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, the debtor must compile the following information:
- a list of all creditors and the amounts and nature of their claims
- the source, amount, and frequency of the debtor’s income
- a list of all of the debtor’s property
- a detailed list of the debtor’s monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.
Married couples may file petitions for bankruptcy jointly or individually. Married individuals must gather this income information for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse are required so that the court, the trustee, and creditors can evaluate the household’s financial position.
The process of Chapter 13 bankruptcy debt reorganization analyzes your debt and your expendable income and creates a plan for debt repayment through the court trustee that is limited to a specific time period. Upon successful completion of the requirements of your debt reorganization plan, remaining balances are discharged and you are in good standing on all your payments with new expendable income. Because you are reorganizing your debt structure, and not liquidating it, you may be able to stop foreclosure and save your family home, among other assets.
Call Rod Kight and find out how Chapter 13 Debt Consolidation can be an effective tool to restoring your financial health.