Chapter 13 Bankruptcy...
We know a couple that got into a tight financial situation and decided to file a petition for a chapter 13 bankruptcy repayment plan.
Cooper had lost his job and Tonya's income just wasn't enough to cover their living expenses. They had no savings and their house was in foreclosure. Their goal was to stop the foreclosure at any cost.
The problem is they just didn't have enough income to afford to keep their home. So fast forward 6 months later and they were still stressed and struggling to keep up with the bankruptcy repayment plan.
The problem is they never changed their spending habits. So the bankruptcy just delayed the inevitable.
They finally faced the truth and realized they had to do something different. A chapter 13 bankruptcy was not the best debt solution for their financial situation.
Your goal is to select the best debt solution for your financial situation in order to be debt free. If it doesn't help you to be debt free, it may not be the best debt solution for you.
As you probably already know, there are alternatives to bankruptcy:
So, it's really important that you first evaluate your financial situation yourself and determine which debt solution is best for you.
But before you decide, lets discuss what bankruptcy is and how a chapter 13 bankruptcy repayment plan works:
What is Bankruptcy?
First of all, you should know that "Chapter 13" refers to that particular chapter of the U.S. Bankruptcy Code. There are others.
The U.S. Bankruptcy Code allows for discharge of your debts based upon certain rules. To discharge your debts means you are no longer liable for the debts.
In other words, once they are discharged, you no longer have to pay them. The basic goal of the bankruptcy code is to help you to get a fresh start.
How does a chapter 13 bankruptcy repayment plan work?
A chapter 13 bankruptcy is also called a wage earner's plan. If you have regular income, it allows you to develop a plan to repay all or part of your debts.
Basically, you file a petition with the court and propose a repayment plan to make installment payments to your creditors over 3 to 5 years.
During this time, by law, your creditors cannot start or continue any collection efforts against you. So, they can't garnish your wages, call you, or send you threatening letters!
After you file your chapter 13 petition, a chapter 13 trustee will be appointed and will hold a meeting with you and your creditors.
Sometime after the meeting of creditors, you, the chapter 13 trustee, and any creditors who want to attend, will go to court for a hearing about your chapter 13 repayment plan.
If the court approves your plan, the chapter 13 trustee will start to distribute the money you pay under the plan to your creditors as soon as possible.
However, if the court doesn't approve your plan, you can file a modified plan.
You may also convert your case to a liquidation case under chapter 7.
But assuming your plan is approved, once you make all of your payments under the plan, generally, you are entitled to have your debts discharged.
Is chapter 13 bankruptcy better than chapter 7 bankruptcy?
Chapter 13 does offer some advantages over liquidation under Chapter 7. But remember, select the best debt solution for your financial situation.
One advantage to chapter 13 is you can stop foreclosure proceedings and have a chance to catch up on your delinquent mortgage payments over time. However, you still have to make all your mortgage payments that come due, during the chapter 13 plan, on time.
Another advantage of chapter 13 is that it allows you to reschedule your secured debts (other than your mortgage for your primary residence) and extend the balances over the life of the chapter 13 plan.
Doing this may lower your payments. For example, you may be able to schedule the balance of your car note out over 5 years instead of your original payment term. This could obviously lower your monthly car payment.
Also, chapter 13 acts sort of like a consolidation loan which allows you to make your payments to a chapter 13 trustee who then distributes your payments to your creditors. You won't have any direct contact with your creditors while under chapter 13 protection.
Finally, there are some debts that can be dischargeable in chapter 13, but not in Chapter 7 (e.g. debts incurred to pay nondischargeable tax obligations, and debts arising from property settlements in divorce or separation proceedings).
Can I do it myself?
The bankruptcy law regarding the scope of the chapter 13 discharge is complex and has recently undergone major changes. Therefore, I recommend you consult a competent bankruptcy attorney, regarding what debts can be discharged under chapter 13, prior to filing.
However, if you do decide to take it on yourself, there are some good software programs to help you to complete the bankruptcy forms and some good "how to" books out there as well.
What forms and information do I have to provide for a chapter 13 bankruptcy?
Unless the court orders otherwise, you will have to file:
(1) schedules of assets and liabilities
(2) a schedule of current income and expenditures
(3) a schedule of signed contracts and unexpired leases
(4) a statement of financial affairs
Interestingly enough you also have to file a certificate of credit counseling and a copy of any debt repayment plan you may develop through credit counseling.
In other words, you will have to attend credit counseling and obtain a certificate to prove you attended.
You will also have to provide the chapter 13 case trustee with a copy of your tax return or transcripts for the most recent tax year as well as tax returns filed during the case.
The official forms are not available from the court, but you can download them and get more bankrukptcy information at the US Bankruptcy Court website.
So if you decide to go the chapter 13 route make sure it helps you to be debt free. Otherwise, it may not be the best debt solution for your financial situation.