An Introduction to Chapter 13 Bankruptcy

If you need to file for bankruptcy, you might be surprised to find out that there are multiple options available depending on your situation and what your ultimate outcome is. Many people have heard of Chapter 7 bankruptcy, but another helpful method is to file Chapter 13 bankruptcy. With this type of filing, you can still keep your commitment to repay your creditors on a modified time frame and have the ability to retain your personal property.

Who Can File for Chapter 13?

Chapter 13 bankruptcy hinges on being able to stick to a repayment plan, so you must prove to the court that you have enough consistent income to be able to make your payments. You also need to meet a debt qualification in order to file this type of bankruptcy; if you have too much debt it will be nearly impossible for you to repay it all.

Typically you are structured to repay your creditors within three to five years, so this means that you can only have a certain amount of secured and unsecured debt. Your secured debt, which includes items like your house or vehicle, cannot exceed $1,184,200. Unsecured debt includes credit cards and medical bills, and this cannot total more than $394,725.

The Chapter 13 Process

Before beginning your filing, you are required to receive credit counseling from an approved agency. You’ll also need to fill out paperwork detailing your income and debt information, as well as pay a fee for filing. Once your information is in order, you will attend a hearing to determine the details of your repayment plan.

You should expect that most of your extra income will be allocated toward your payment plan. Some of your debts will be considered priorities and your plan will specify that you repay them in full. Others won’t necessarily require you to pay the complete amount, but instead want to see your payments as a good faith effort.

Depending on your income, you will have either three or five years to fulfill your repayment plan. The court will examine your income for the six months prior to your filing, and if your income is lower than average for your state, you will be allowed to complete the shorter three year option.

What If You Can’t Complete the Plan?

Sometimes hardships come up, and if you are having a hard time staying current on your repayment plan, you might be eligible for a restructuring of your plan, or a complete discharge should your situation be extreme. Another option is to try to convert your filing to a Chapter 7 case.

Once you’ve completed your repayment plan, any remaining debts will be discharged and you will have a clean slate once again. You’ll have pride knowing that you did your best to fulfill your financial obligations, and you’ll be able to start new without excessive debt weighing you down.

If you need assistance with your debts and feel that bankruptcy might be the best solution for you, contact Bankruptcy Solutions today.

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