What is Chapter 13 Bankruptcy?

Why You Should Consider Chapter 13 Bankruptcy

Chapter 13 bankruptcy is sometimes referred to as the wage earner’s bankruptcy plan. It allows individuals with a consistent income to create a plan that helps them repay a portion or all of their debt. In Chapter 13 bankruptcy, debtors create a payment plan to make payments over three to five years to their creditors. If their income is less than the median income of the state, the plan will be made for three years unless a longer period is approved by the court. Debtors are rarely allowed to create plans for longer than a five-year period.

Advantages of Chapter 13 Bankruptcy 

A Chapter 13 bankruptcy allows you a number of advantages over Chapter 7 bankruptcy. Most significantly, a Chapter 13 bankruptcy gives you the opportunity to save your house from foreclosure. Even if you are delinquent on your mortgage, the plan will allow you to catch up over a period of time.

Another advantage is that it allows you to reschedule your secured debts and extend them out over the period of the plan. This often lowers payments and protects any co-signers you may have on the debts. Finally, Chapter 13 acts as a consolidation loan where you make payments to the bankruptcy trustee and the payments are then distributed to your creditors allowing you to have no direct contact with your creditors.

Disadvantages of Chapter 13 Bankruptcy

Like any bankruptcy, Chapter 13 has its disadvantages, as well. The most obvious disadvantage is the amount of time the plan lasts. During that time, three to five years, you must put all of your disposable income into the repayment plan.

Chapter 13 Bankruptcy Eligibility 

As long as your secured debts are no more than $1,184,200 and your unsecured debts are no more than $394,725, you will be eligible to file for a Chapter 13 bankruptcy, even if you are self-employed. These figures are adjusted from time to time to reflect any changes that are made to the consumer price index.

You may also not qualify for bankruptcy if a prior petition for bankruptcy has been dismissed in the preceding 180 days if the debtor’s fail to appear in court, comply with orders of the court, or the chose to voluntarily dismiss the case when creditors try to recover any property that had liens.

In addition, you also cannot file for Chapter 13 bankruptcy unless you have received credit counseling from an approved agency within 180 days of filing for bankruptcy. There are certain emergency exceptions where the bankruptcy trustee may determine that there are not approved agencies that are able to provide the necessary counseling. If, however, a debt management plan is developed, that plan must be filed with the court.

Consult with an Experienced Bankruptcy Attorney

Because bankruptcy has so many stipulations and regulations, it is important to consult with an experienced bankruptcy attorney. The attorneys at Cornwell Law Firm will review your situation and help you determine what type of bankruptcy is right for you. They have years of experience helping their clients get back on their feet financially. Contact us today to schedule a free consultation.