Chapter 13—The Repayment Plan
Chapter 13 bankruptcy is basically an interest-free repayment plan that gives you the opportunity to propose and execute a strategy to reorganize your financial affairs and repay your debt over 3-5 years. While in a Chapter 13 debt repayment plan, creditors cannot collect from you and are required by a Federal Court order to adhere to the terms of the chapter 13 plan.
If you don’t qualify for a Chapter 7 bankruptcy due to excessive income (determined by calculating the means test) you still have the opportunity to get some debt relief through Chapter 13. It’s also for those who want to protect valuable property that would not be exempt under Chapter 7 bankruptcy.
Chapter 13 is a powerful tool for you to regain control of your financial life and get a meaningful fresh start.
Stop Foreclosure Immediately
If your home is in foreclosure, a Chapter 13 bankruptcy filing will stop the foreclosure any time prior to the foreclosure sale. It allows you to repay your mortgage arrears through Chapter 13. You’ll still be obligated to make all future mortgage payments directly to the mortgage company after your case is complete. During the chapter 13 while you are repaying your mortgage arrears the mortgage company cannot continue with the foreclosure. Once you complete the chapter 13 and you’ve repaid your mortgage arrears you are back to your normal contractual mortgage payment.
Save Your Car
If the “repo” man is looking for your car, a Chapter 13 bankruptcy will stop the finance company from repossessing your car. The past due payments and the entire balance on your vehicle loan will be consolidated, which you’ll pay off over the next three to five years. The vehicle finance company can no longer repossess your car, and you will no longer make the payment to the finance company. Only one payment is made, and that is to the Chapter 13 trustee. If you have a high-interest rate on your car loan you may be able to negotiate a lower interest rate as long as you pay off your vehicle during the term of the chapter 13.
Consolidate Student Loans
Although you cannot eliminate student loans in a Chapter 7 bankruptcy, you can consolidate them, along with your other bills, in Chapter 13. Chapter 13 will also stop any collection action and garnishments related to student loan debts. It will consolidate your bills so that you repay them in a plan, or if current outside of the plan, in a manner that is feasible to you.
Your cosigners receive the same protection you do under Chapter 13 bankruptcy. Through a Chapter 13, we’ll protect your cosigners from any collection activity. Creditors must wait to be paid under the repayment plan you get approved by the Court. So—if your friend or relative cosigned on your vehicle, and you’re having trouble affording the payments, we can put the remaining balance inside a Chapter 13.
Beware of Refinancing
Refinancing or taking out a second mortgage might create an additional mortgage payment you won’t be able to afford—instead of addressing the issue of past due payments. If you have equity in your home you can file a Chapter 13 bankruptcy, protect your equity, and repay your mortgage arrears over as much as five years. Why eat up your equity with another mortgage? Explore Chapter 13 bankruptcy as an alternative to a high-interest rate equity loan against your home.
Disadvantages of Filing Chapter 13
- A Chapter 13 bankruptcy can take up to 5 years to complete the process. Chapter 7 bankruptcy take from 3-4 months.
- Chapter 13 stays on your credit report for 7 years. Chapter 7 stays on for 10 years.
- All of your cash will be tied up in living expenses or debt payments for the next 3-5 years and you’ll find it difficult, though not impossible, to get credit.
- You cannot declare for Chapter 7 if you have gone through Chapter 13 bankruptcy in the last six years.
Basic Steps to a Chapter 13 Bankruptcy
In order to file for Chapter 13 bankruptcy, you must meet several requirements:
- Resident – You must reside in, do business in, or own property in the United States.
- Income – You’ll need to prove to the court you not only have a regular income but you can afford your financial obligations under the proposed repayment plan.
- Debt – Meet secured and unsecured debt limits.
- An Individual – Chapter 13 is not available to companies, but if you’re a sole proprietor, you can include both personal and business debts in your Chapter 13 petition.
2. Mandatory Credit Counseling
All individuals who file for bankruptcy must complete a credit counseling course by an approved agency within 180 days prior to filing for bankruptcy. This counseling will help you to determine if bankruptcy is an appropriate option, and which one is right for you.
3. Filing your Chapter 13 Petition
A Chapter 13 bankruptcy case begins by filing a petition with the bankruptcy court and paying a filing fee. The petition is accompanied by a whole packet of other forms and information. The petition must include the following information:
- Debt – list of all creditors and amount owed
- Income – source, amount, and nature of the income
- Property – list of all property and assets
- Living expenses – list of all monthly living expenses, including food, clothing, shelter, utilities, taxes, and medical
If married you’ll need to include this same information for your spouse—even if you’re filing a separate bankruptcy petition.
In addition to the petition, you’ll also need to file the following documents with the court:
- Schedule of assets and liabilities
- Schedule of current income and expenditures
- Statement of financial affairs
- Schedule of executory contracts and unexpired leases
- Certificate of credit counseling
- Copy of debt repayment plan
- Evidence of payment from employers received within 60 days prior to filing
- Statement of monthly net income
- Document detailing any anticipated increases in income or expenses after filing for bankruptcy
- Record of any interest the debtor has in federal or state qualified education and tuition accounts
You’ll also be responsible for paying a filing fee to the Clerk of the Court. Filing fees can increase at any time, but are currently $310.00 for chapter 13 and $335.00 for chapter 7.
4. Meet Your Trustee
When you file the petition, the court will appoint an impartial trustee to administer the case. The role of the Chapter 13 trustee is:
- to make sure your proposed repayment plan complies with the law
- receive the payments you make under the plan and distribute them to your creditors in the manner required by law
- monitor the monthly income and expense reports required in a Chapter 13 case
- monitor your duty to file tax returns with the appropriate federal and state taxing authorities and annually while your Chapter 13 case is pending
- if you owe back child support, provide the payee and your state’s child support enforcement agency with required information.
5. The Automatic Stay
Once your Chapter 13 bankruptcy petition is filed the automatic stay goes into effect. The automatic stay is a one-page document that gets sent to all your creditors notifying them of your bankruptcy and prohibiting them from taking certain actions. It basically prohibits creditors from making any further collection actions outside of the bankruptcy.
6. Repayment Plan
Unless granted an extension by the courts, your repayment plan must be filed, submitted for court approval, with or within 14 days after the Chapter 13 petition is filed.
The repayment plan is the heart of a Chapter 13 bankruptcy. You must be able to develop a repayment plan you can afford for the 3-5 year repayment period, and the court must approve the plan. The plan tells the court and your creditors how you intend to pay your debts, how much each creditor will receive, and how long your plan will last.
7. Meeting of the Creditors
Between 21 and 50 days, after you file your chapter 13 petition, the chapter 13 trustee will hold a meeting of creditors. You must attend this meeting and answer questions regarding your financial affairs and the proposed terms of your plan. You will be placed under oath and both the trustee and creditors may ask questions. Any problems with the plan will need to be resolved during or shortly after the meeting. To avoid any problems it’s best to make sure the petition and plan are complete and accurate.
In order to receive a discharge of your debts at the end of your bankruptcy case, you must:
- make all payments under the plan
- remain current on your taxes
- remain current any child support or alimony obligations.
If your plan paid less than 100% of your unsecured debts, when you finish the plan, those debts will be discharged in full—meaning the remaining balance will be wiped out.
Our firm will provide you with a range of fair fees right over the phone. We’ll give you a low attorney fee and allow you up to six months to pay the remaining fees, in amounts which fit your budget. Under this payment plan, you can hire us with as little as $100, which will allow you to refer any creditors or collection agencies to our office. Once the fees are paid in full, your case will be filed. Call (509)921-9500 to schedule an appointment today or submit our no free no-obligation consultation form.