What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is a repayment bankruptcy which lasts for a period of 3–5 years. Bankruptcy rules dictate the plan payment amount is determined by several factors, including secured loan payments, debts owed to governmental creditors, and the income of the debtors. A Chapter 13 can be used to reinstate drivers licenses suspended for unpaid tickets.
Chapter 13—The Repayment PlanChapter 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 filing bankruptcy 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 filing bankruptcy in a Chapter 7 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 get a bankruptcy discharge and regain control of your financial life and get a meaningful fresh start.
Washington State Bankruptcy Laws—Chapter 13There are no specific Washington State bankruptcy laws regarding a Chapter 13 besides property exemption laws. The only time State laws come into play is if State Exemptions are used to protect your property. There are a lot of ins and outs to State exemptions, so you should always consult with a bankruptcy attorney to determine if your assets are protected through bankruptcy. You can find the Washington State Chapter 13 bankruptcy exemptions which are codified in the Washington Revised Code under: RCW 6.13, RCW 6.15, RCW 6.27, RCW 51.32, RCW 50.40, RCW 48.18, RCW 6.48, RCW 74.04, RCW 6.32, RCW 68.24, RCW 41.28, RCW 41.26, RCW 41.20, RCW 41.24, RCW 41.40, RCW 41.32. The bulk of the Washington State exemptions are RCW 6.15 and RCW 6.13.
Does Chapter 13 Bankruptcy Stop Foreclosure?Yes, filing bankruptcy in a Chapter 13 stops foreclosure by setting up a payment plan to pay the past due amount, as well as the current payment, over a period of 3–5 years. During this time, the mortgage creditor cannot pursue the foreclosure unless they ask for permission from the Court or the Chapter 13 is dismissed.
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 bankruptcy 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.
Can Bankruptcy Stop Repossession of a Vehicle?Yes, if you are behind on your car payments, filing bankruptcy in a Chapter 13 can stop the repossession by paying the past due payments, as well as the current vehicle payment, over a period of 3–5 years.
Save Your Car!If the “repo” man is looking for your car, filing bankruptcy in 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.
Does Chapter 13 Bankruptcy Cover Student Loans?During a Chapter 13 bankruptcy, your student loans can either be added to the Chapter 13 Plan and paid by the trustee, or if you are current on your student loan payments, the payment may be able to be made outside of the Plan. Student loans may also be deferred or placed in forbearance during the term of the Chapter 13. Student loans which were not paid in full during Chapter 13 are not wiped out in the bankruptcy discharge. If you want to know more about bankruptcy and student loans, contact us.
Consolidate Student Loans!Although you cannot eliminate student loans by filing bankruptcy on 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.
Does Chapter 13 Bankruptcy Stop Garnishment?Yes! If you are being garnished, a Chapter 13 will immediately stop the garnishment when the case is filed as well as any other legal or collection actions which are underway.
What Happens to Cosigner If I File Bankruptcy?A cosigner in a Chapter 13 is protected by the co-debtor bankruptcy automatic stay, which is found in Bankruptcy Code 11 U.S. Code § 1301. This means that no collection action may be taken against the co-signer without prior Court approval or dismissal of the Chapter 13. This law is only applicable to Chapter 13 bankruptcies and does not apply to Chapter 7 cases.
Protect Cosigners!Your cosigners receive the same protection you do under Chapter 13 bankruptcy. Through 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 RefinancingRefinancing 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.
Do I Qualify for Bankruptcy Chapter 13?In order to qualify for a Chapter 13, you must be able to demonstrate an ability to pay your creditors. This may be from employment income, self-employment income, or a fixed source of income, such as a pension or Social Security. While most cases filed are under Chapter 7, a Chapter 13 offers solutions which are not available under the Chapter 7 and therefore may be the correct option for your case.
What is the Difference in Chapter 7 and 13 Bankruptcy?A Chapter 7 bankruptcy lasts 90 days from start to finish, and you do not have to repay any of your creditors, except for secured creditors which were reaffirmed and any creditors not included in the discharge, such as student loans, taxes, and child support. A Chapter 13 is a repayment bankruptcy which lasts for 3-5 years and a plan payment is due each month which is distributed to your creditors according to your specific Chapter 13 Plan. A Chapter 13 can be used to cure past due payments on secured loans, such as vehicles and homes, as well as reinstate licenses suspended due to tickets. The Chapter 13 bankruptcy discharge includes more types of debts than a Chapter 7 bankruptcy discharge. A free consultation will help you decide if a Chapter 7 or a Chapter 13 is the right option for you!
Is Chapter 13 Public Record?Yes, all bankruptcy filings are Public Record.
How Long Does it Take to File Bankruptcy Chapter 13?A Chapter 13 bankruptcy may be able to be filed within a matter of days once you can provide our firm with the necessary information and take your pre-bankruptcy credit counseling class. The sooner we begin, the sooner the case can be filed. Call (509)921-9500 and schedule an appointment today for a free consultation about your situation.
What Happens at the End of Chapter 13 Bankruptcy?Once your final plan payment has been received by the Chapter 13 Trustee, the Trustee’s office will conduct an audit of your case to make sure that all creditors have received what they were required. During this time, a Domestic Support Obligation Certificate is required for each debtor, specifying whether they are required to pay child support—your attorney will prepare and file this Certificate. You may also need to still take the second class, Debtor Education/Personal Financial Management. The Certificate from that class is required before your case can complete. The Trustee issues a Certificate of Completion and then the Bankruptcy Court will issue the bankruptcy discharge. It may take a few weeks from the time the final plan payment is received until the case is discharged and any excess funds received by the Trustee during that time are returned to you.
How Long Does Chapter 13 Bankruptcy Stay on Your Credit?A Chapter 13 bankruptcy stays on your credit reports for seven years from the date of filing.
How Often Can You File Chapter 13 Bankruptcy?A Chapter 13 bankruptcy can be filed at any time, but if you’ve had a bankruptcy discharge of a Chapter 13 and filed another before four years is up, you would not be eligible for another bankruptcy discharge. However, based on your financial situation, a Chapter 13 without a bankruptcy discharge still offers protection from garnishments, foreclosures and levys. If you are not sure what to do about your debt, a free, no obligation consultation with our attorney can help you decide what is the best option for your situation.
Can I Buy a House While in Chapter 13 Bankruptcy?It is possible to buy a house while in a Chapter 13, however it is more difficult because it requires permission from the Chapter 13 trustee or an Order from the Court. Finding a lender willing to finance during Chapter 13 can be challenging and most lenders want to see that all of the plan payments have been made on time, each month. The trustee and the Court will also require all plan payments to be current before allowing any new debts within a Chapter 13. You will need to provide pay stubs and an amended budget showing you can afford the new mortgage payment while still maintaining your Chapter 13 plan payments.
Can You Buy a Car While in Chapter 13 Bankruptcy?Buying a car is possible within a Chapter 13, however it requires more time to complete the transaction. In order to buy a vehicle, you must first find the vehicle you wish to purchase and obtain an offer of financing from a lender. Once you have the vehicle and loan terms, the information is submitted to your attorney who either asks the Trustee for a letter granting permission to incur new debt or an Order must be obtained from the Court. You must also submit your pay stubs and an amended budget showing you can afford the new vehicle payment. Your Chapter 13 plan payments need to be current in order to obtain permission from the trustee or an Order from the Court.
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. We have had client’s refinance homes or purchase new homes in Chapter 13, but it is rare.
- You cannot declare for Chapter 7 if you have gone through Chapter 13 bankruptcy in the last six years.
What are the steps in filing Chapter 13 bankruptcy?There are 8 steps to filing Chapter 13 Bankruptcy.
- Determining Eligibility
- Mandatory Credit Counseling
- Filing Your Chapter 13 Petition
- The Automatic Stay
- Repayment Plan
- Meet Your Trustee
- Meeting of the Creditors
- The Discharge