If you are struggling to meet your personal obligations in today's challenging economic environment, a Chapter 13 bankruptcy filing can give you the reprieve you need to get out from under a difficult financial situation, allowing you time to rebuild your reserves and an opportunity to establish new payment arrangements with all your creditors. When you file for protection under Chapter 13, an automatic stay immediately goes into effect, prohibiting your creditors from calling or writing you to collect a debt. You want an experienced and knowledgeable lawyer to guide you through the process, so that you get the relief you need and expect.
A Chapter 13 bankruptcy, referred to as a reorganization bankruptcy, allows you to establish a plan to repay debts with future income over a three-to-five year period while retaining your property. This form of bankruptcy is designed for those who have a steady income and are otherwise ineligible for Chapter 7 protection.
The Chapter 13 repayment plan allows you to keep your property, provided that you repay your creditors with disposable income according to the terms of the plan. Disposable income is determined through the means test — an assessment of available income to pay both secured and unsecured debt. If you are seeking to retain secured property, the repayment plan will incorporate the current monthly payments as well as any arrearage.
Although unsecured debts are repaid if there is sufficient disposable income, each unsecured creditor may only be repaid a percentage of the claim or debt. In some Chapter 13 cases, unsecured debt may also be entirely eliminated. In any event, once the repayment plan is completed, the court will issue an order acknowledging that the debts have been paid and/or discharged. Creditors are then permanently barred from demanding payment for those discharged debts.
To initiate a Chapter 13 proceeding, it is necessary to file a petition with the local bankruptcy court, which must include a proposed plan to repay your debts over a 36-to-60 month period. There is also a means test to determine if you are eligible for Chapter 13 protection, you are required to provide the necessary forms and financial information with your petition, and you must also pay a filing fee.
The bankruptcy trustee appointed to manage your case will conduct a 341 meeting of creditors at which you must show that you have sufficient disposable income to make the proposed payments. The court will then approve or confirm the plan, provided that there are no objections raised by the trustee or your creditors. Once the plan is approved, you make monthly payments to the bankruptcy trustee, who then distributes payments to your creditors. If you fail to make all the payments under the plan, the trustee will dismiss your case and creditors will be permitted to resume collection activities.
There are a number of benefits of Chapter 13 relief, starting with the discontinuation of all collection activities by creditors. This includes garnishments, repossessions, utility shut-offs and civil lawsuits. In addition, a Chapter 13 filing allows you to retain your home and temporarily stops a foreclosure proceeding. You are allowed to hold onto your home, provided that any arrearage is paid and that you continue making monthly mortgage payments. Moreover, if you are behind on your auto loan, Chapter 13 also allows you to repay the balance of the loan over a three-to-five year period, possibly at a reduced interest rate. Finally, the repayment plan may also include tax debts, or eliminate tax debt for a tax period that is at least three years old, as well as penalties and interest on other tax debt.
There are drawbacks to filing for Chapter 13 bankruptcy. First, a discharge will not eliminate all of your debts, such as child support and spousal maintenance claims, student loans, criminal fines or any debts not included in the repayment plan. Second, you cannot incur new debt, purchase anything on credit, or sell or transfer any property, without prior approval of the court while you are in bankruptcy. Third, If you fail to make payments under the plan, secured creditors can resume foreclosure or repossession actions on your home, after obtaining a relief of stay from the bankruptcy court. Finally, a bankruptcy remains on your credit report for 10 years, which could have a negative impact on your creditworthiness.
If you need assistance reorganizing your finances and are considering filing for Chapter 13 protection we can help. We will take the time to understand your financial situation and determine if a personal bankruptcy is the best option for you. We are innovative in our approach and can help you overcome your financial challenges in these unprecedented times. Somma Law PLLC is a Debt Relief Agency under federal law. We help people file for bankruptcy relief under the United States Bankruptcy Code.
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