Have you found yourself buried under debt and feeling like you have run out of financial options? If so, bankruptcy may be the right choice to help put you back on the path to financial freedom. Bankruptcy is intended to give debtors (the individual in debt) a fresh start with their finances. There are six Chapters of bankruptcy to offer options for individuals and organizations looking to start on the road to becoming debt-free. In this article, we will be focusing on Chapter 13 bankruptcy.
What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is often referred to as the Wage Earner’s Bankruptcy. Unlike Chapter 7, Chapter 13 bankruptcy gives the debtor the opportunity to pay off all, or parts, of their debt over time rather than liquidating their property or facing steep penalties. This chapter of bankruptcy is for individuals that have a consistent income, however, they need a little more time to pay off their debts than the creditors are allowing. In this chapter of bankruptcy, you can pay the debt off over a course of 3 to 5 years.
To be eligible to file Chapter 13 bankruptcy you must:
- Be an individual, not a business
- Have a consistent, regular income
- Have unsecured debt under $394,725 or secured debt under $1,184,200
What Are the Steps To Apply for Chapter 13 Bankruptcy?
Deciding to file for bankruptcy is a big decision for anyone in debt. Speaking with a bankruptcy attorney can be an important first step before you take the first steps into the application process. A bankruptcy attorney will be able to help evaluate your options, guide you through the dozens of necessary forms that need to be filed, and answer any questions you may have along the way. Once you have evaluated all of your options and decided that you are ready to file Chapter 13 bankruptcy, you will need to follow the steps below.
Step 1. Analyze Your Debt, Income, and Property Values
With Chapter 13 bankruptcy, you must fall within the bankruptcy court’s requirements to be eligible to file. Before you file your forms, you will need to assess your debt, monthly cost of living, and any other financial commitments. You will also need to make sure that your debt is under the specified limits (unsecured debt under $394,725 or secured debt under $1,184,200). Once you have evaluated your monthly expenses, you will need to show that you will be able to financially cover your cost of living plus the debt you are required to pay back to the creditors each month. If your income is not enough to cover the total payments, the court will not let you proceed to file your application.
Step 2. Take a Credit Counseling Education Course
Before you can file your application, you will be required to complete a credit counseling education course. This is the first course that you must complete in the bankruptcy process and you will not be allowed to file your application until this course is completed. Upon completion of the course, you will be awarded a certificate that you must include when you file your bankruptcy forms.
Step 3. Filing Your Chapter 13 Application With the Bankruptcy Court
Once you have completed your credit counseling course, you are now ready to begin your application. There are dozens of forms that you will need to complete to be considered for bankruptcy. These forms will include detailed explanations of your total debt, your bankruptcy exemptions, your monthly cost of living, your total income as well as your repayment plan to repay the debt to your creditors. It is important to make sure you have included all of the necessary information in your application or else the court will reject your case. Working with a local bankruptcy attorney can help make sure your application is complete and filed correctly with the courts.
Step 4. Pay the Filing Fee
When you file for any chapter of bankruptcy, you will be required to pay a filing fee to the court. Each chapter has a different fee that the court has determined. The current fee to file for Chapter 13 bankruptcy is $310. Once you have completed your forms and paid your filing fee, the bankruptcy court will begin the review of your bankruptcy application.
Step 5. A Bankruptcy Court Trustee is Assigned to Your Case
At this stage, your case will be assigned to a bankruptcy court trustee. This trustee is assigned to review the details of your application, verify the information that you provided, and examine all of the documents, records, and financial statements that you submitted with your application. After a thorough review of your application, the trustee will be the one that recommends to the judge if your case should be accepted or not.
Step 6. Meeting of Creditors
A few weeks after your application has been filed and your trustee has been assigned, you will attend the first of two in-person meetings. The first meeting is referred to as the meeting of creditors and is a time when you meet with your trustee to review all of the forms, your repayment plan, and any financial records that support your claim. The creditors are allowed to join this meeting, however, they rarely do. This meeting is your chance to answer any additional questions your trustee may have about your financial situation before they make their final recommendation on your application to the bankruptcy court judge.
Step 7. Confirmation Hearing with the Bankruptcy Court Judge
After the meeting of creditors, your trustee will make a recommendation to the bankruptcy court judge on whether your case should be approved or dismissed. At this stage, the creditor can send objections to the judge to take into consideration along with the trustee’s opinion. If the judge decides to accept your application, your case will be confirmed and you will begin your repayment plan to your creditors. If the judge decides to reject your application, your case will be dismissed and you will need to start the appeals process.
Step 8. The Repayment Phase
If your application was confirmed, you will need to start your repayment plan to your creditors within 30 days. This repayment plan will be over 3 to 5 years and will not be changed from what you originally filed with the court in your initial application. If at any point you miss (default) a payment, the bankruptcy court can dismiss your case.
Step 9. Take a Debtor Education Course
This is the second course you will need to take before your bankruptcy journey is complete. This debtor education course is required by the bankruptcy court and you will need to file a certification of completion with the court before you will be granted your bankruptcy discharge.
Step 10. You Are Granted Bankruptcy Discharge
Once you have completed your repayment plan and submitted your debtor education certificate, you will be granted bankruptcy discharge by the bankruptcy court. Bankruptcy Discharge is an order that discharges you from the remainder of your qualifying debt and prevents creditors from attempting any further collections. This is the last step in your application and your first step into a fresh financial start for your life.
Are you Ready to Apply for Chapter 13 Bankruptcy?
If you are ready to apply for Chapter 13 bankruptcy, it is important to speak with a local bankruptcy attorney to discuss the specifics of your financial situation and the best options you may have to move forward. Complete our free evaluation and a local bankruptcy attorney will contact you to help you take the next steps towards a debt-free life.