In this article we will look at what to know when filing for bankruptcy Chapter 13. A complete guide with everything you need to know in 2022.
If you need assistance with Chapter 13 bankruptcy law, we can help. We are New York bankruptcy lawyers with more than 30 years of history and experience helping businesses and individuals achieve their financial goals.
What Is Chapter 13 Bankruptcy
Chapter 13 bankruptcy is also known as a wage earner’s plan. This allows individuals with a regular income to create a plan to pay off all or part of their debts.
The bankruptcy Chapter 7 consists of liquidating assets to pay its debts before complying with remaining balances. However, Chapter 13 bankruptcy, which is the one we are dealing with in this article, is about creating a court-ordered plan to pay off your debts. It is for people with a certain level of income or assets.
- You as a debtor propose a plan to pay your creditors in installments over 3 to 5 years.
- The duration is determined by a court based on your income.
- In this repayment period the creditors cannot continue with the collection.
- The payment plan is based on disposable income after court allowed expenses
Note: If you want to learn more about the differences between Chapter 7 and 13 bankruptcy, check out “Bankruptcy Chapter 7 vs 13“.
On the other hand, almost any individual or business can file for bankruptcy under Chapter 11. For more information visit our section “ What is Chapter 11 bankruptcy ” where we discuss the topic in detail.
Considerations Of Filing For Chapter 13 Bankruptcy
Although it is easy to believe that creditors agree to a tight payment system so that you can pay your debts, the reality is different. Actually, the opposite is usually the case.
In fact, two-thirds of all Chapter 13 filings are discarded or converted to Chapter 7.
What Is Best For The Lender?
For the lender, the ideal case is to convert your presentation to Chapter 7:
- Assets like your home can be liquidated to pay off your debts immediately.
- They get the money quickly and avoid the hassle since you shouldn’t expect smaller payments that the court would award with Chapter 13 bankruptcy.
Why Is Chapter 13 Usually Your Best Option?
For you and in general, filing for bankruptcy Chapter 13 will be a better option in the following cases:
- You have recurring income, but unsecured debt payments destroy your monthly finances . If your problems are caused by delinquent bank and credit card accounts, adjusting your payment schedule will put you in a better position without risking your assets.
- You want protection from your creditors, but you make too much money to file for Chapter 7 bankruptcy.
- You have significant personal assets and do not want to lose them in a liquidation, repossession or foreclosure : An example of this would be having a large amount of equity built up in your home. On the other hand, if you are in difficulties with your mortgage, you may not mind the liquidation of this asset.
Eligibility Requirements For Filing Chapter 13 Bankruptcy
Bankruptcy under Chapter 13 is quite strict in its requirements. Remember that it is not for everyone.
- Your total secured debts must not total more than $ 1,184,200.
- Your total unsecured debt must be less than $ 394,725.
- You must have resided at least 2 years in the state where you want to apply.
- Stable rent payment that allows you to meet your monthly obligations at home and meet a payment plan.
- You are not a business since only an individual can file for Chapter 13 bankruptcy. However, here you must take into account the debts of your personal business that will be part of your plan. Therefore a sole proprietorship can benefit from Chapter 13.
- You are not excluded by a previous bankruptcy as you must serve the 2-year term under Chapter 13. It will be 4 years under Chapter 7.
- A previous bankruptcy case has not been rejected in the last 180 days.
- You filed your income tax return.
- Prior to filing, you will need to complete a certified credit counseling session. This must be approved by the Court within 180 days prior to the filing date.
There are requirements for specific situations and others that your state may require. Consulting with experienced Chapter 13 bankruptcy lawyers is recommended.
Note: We are also New York business lawyers and experts advocates for small businesses in New York with over 30 years of history and success. If you are experiencing a difficult financial situation for your company, do not hesitate to contact us. You may be interested in reviewing the recent article on Subchapter V of Chapter 11 bankruptcy.
Expectations When Filing Chapter 13
As soon as you complete the pre-filing credit counseling session and submit the form, the courts issue an automatic stay.
In this way, you avoid measures taken by creditors to collect your debts. In many cases it prevents them from calling you again. Likewise, wage claims and garnishments stop.
The bankruptcy commissioner sends notices of application to all the lenders and creditors listed in your filing. You must provide any contact information.
An evaluation of financial means is carried out following the guidelines established by the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). This determines your eligibility filing for bankruptcy Chapter 13.
Advantages Of Declaring Bankruptcy Under Chapter 13
First off you already know the relief of not having to hide from your creditors or avoid phone calls. Additionally, you can get other benefits by filing Chapter 13 bankruptcy:
- Your creditors should stop most collection attempts: They will only be allowed in certain specific circumstances outlined by federal bankruptcy law.
- Freeze interest or penalties on taxes: If you are behind in paying taxes, the IRS applies severe penalties. By filing you can avoid them.
- You can save your home from foreclosure: Automatic deferral or stay also applies to the foreclosure process. Therefore, this process stops as soon as the automatic deferral takes effect. It will remain in force until its expiration schedule is complete. To keep your home, you will need to make the full monthly mortgage payment. However, you can cancel overdue payments over time in the plan.
- It acts like a debt consolidation program: You will make a monthly payment to the bankruptcy trustee that is divided among your creditors. Check our blog post on debt consolidation vs bankruptcy.
- Protects confirmants if they guarantee a debt that you owe: You can affirm a debt that you will pay through the Chapter 13 payment plan and thus prevent confirmants from facing collection actions.
- The debtor takes back control of his situation: It will be the debtor who proposes the payment plan to the court.
Note: Creditors have the right to object to the proposed plan. In these cases it must be approved by a bankruptcy judge. The debtor will make the initial proposal and must also agree to any revision of the proposed plan.
- You can rebuild your credit score and financial life: Although Chapter 13 bankruptcy is a complicated legal matter, the payoff is great. The debtor is freed from liability to creditors involved in the bankruptcy process.
Note: The article “How to raise your credit score fast” on our website will give you extensive information on the subject. Do not hesitate to contact us for any financial questions.
Filing For Chapter 13 Bankruptcy Step By Step
As bankruptcy experts with 30 years of experience, we recommend that you contact us to get a good understanding of your situation. On our website you will find articles of interest to know how to file for bankruptcy in New York.
These basic steps will serve as a reference to understand the process to follow:
It will come as no surprise to you to learn that filing for bankruptcy Chapter 13 involves a great deal of documentation and paperwork. These documents that describe your financial situation include:
- Official Form 122C-1: Statement of your current monthly income and calculation of the Chapter 13 commitment period.
- Official Form 122C-2: Calculation of your disposable income.
Note: Disposable income is the money left over after paying for the basic necessities in your life like utilities, food, rent and so on.
As a general rule, your bankruptcy filing includes forms that request the following information:
- A list of your assets;
- Detailed accounting of monthly expenses for living, lodging, food, taxes, utilities, transportation or clothing;
- The name of the creditors, the amounts requested and the nature of the claims;
- Source of income, amount and frequency of payments.
At Ortiz & Ortiz we can help you with the paperwork and the entire process. It is vitally important that all information is accurate.
- Pre-bankruptcy counseling
Those who file for Chapter 13 bankruptcy must participate in a pre-bankruptcy counseling course. Upon completion, you will receive a certificate of completion that you must include in your application along with your documentation.
Once you have the documentation and the completed advice you are ready to file. The filing fee is $ 335.
At this point the automatic stay begins. That is, creditors can no longer pursue you for the debt and everything takes place in court.
This trustee is assigned to your bankruptcy case by the court and will monitor the progress. You will receive a packet that explains Chapter 13 bankruptcy with dates that are relevant to your case.
- Meeting with creditors
Within 40 days of filing for bankruptcy, the trustee will schedule a meeting of creditors:
- You will be accompanied by your trustee;
- You must bring proof that you filed your tax returns within the last four years and any other information required by the administrator.
- Your creditors have 25 days from before the hearing to file a complaint if they object to the payment plan presented.
- It will bring a modified payment plan if you need to change your plan to satisfy your creditors.
- Creditors are not required to attend and many will not.
- Confirmation hearing
Our New York Chapter 13 bankruptcy attorneys can accompany you to the confirmation hearing.
- Here the court will decide if your plan is approved.
- All objections from your creditors or your trustee will be considered.
- You will get confirmation between 20 and 45 days after meeting with creditors.
With the confirmed authorization to file the application, the judge organizes a payment program ordered by the Court to pay off your debts. There is a possibility that you may only have to pay all of your debts and / or just a portion of each debt.
Note: If your income is above the state median income, your plan must be for five years and if it is below it will be for 3 years. Although some people qualify for 3 years, in most cases it will be 5 years.
- The money is paid to the trustee who distributes the money to your creditors.
- These creditors cannot contact you to request additional money.
- Most likely, you will not speak to a creditor or collector for the entire time it takes to complete your payment schedule.
How To Carry Out The Plan For The Payment Of Debts To Creditors
The key to successful filing for Chapter 13 bankruptcy is having a solid payment plan.
These payments last from 36 to 60 months and can include an amount earmarked for unsecured creditors, child support, mortgage amounts, and back taxes. It may also include payments for the house, vehicle and some part of the debtor’s attorney’s fees.
The objective is:
- Facilitate the payment of unsecured debts such as credit cards or medical bills.
- Provide a way to pay for car, house, income taxes, back alimony payments, or child support.
- Replace the need to deliver or sell non-exempt goods.
The amount of the payment is determined by the type and amount of debt, necessary and reasonable expenses and income of the debtor.
- Debtor education sessions
- You will need to take a debtor education course that covers personal financial management before the final monthly payment.
- You will submit the certificate of completion of the course to the court.
- Debt discharge
After completing both the payment and the course the court will grant you the release. You will either receive a notice by mail or have a short court hearing.
Note: Filing bankruptcy will have different effects, discover the consequences of bankruptcy in the United States.
Frequently Asked Questions About Chapter 13 Bankruptcy
Below we answer recurring questions we receive at the office related to Chapter 13 Bankruptcy Law.
If you would like assistance with your specific case, do not hesitate to contact our New York lawyers who are experts in Chapter 13 bankruptcy law. You can book your private consultation today.
Can I Rent An Apartment Or Car During The Chapter 13 Payment Plan?
Yes, you can.
- Many landlords will check your credit during the rental application and see bankruptcy listed. However, this will not prevent you from renting immediately.
- The important thing in this case is to be able to show that you can pay and explain your situation.
You may be interested in reading our article “Can I keep my car if I file bankruptcy” as it is a frequent question among debtors.
Can You Buy A Car During The Chapter 13 Payment Plan?
- Yes, you can as long as you have the approval of the Court. You can also get a loan.
- Although interest rates are not favorable, vehicle financing is available.
- The simplest thing in these cases is to pay cash for a low-cost vehicle.
Note: The higher interest rates you face when financing during bankruptcy increase your monthly payments and the total cost of the vehicle. Learn how to buy a car after bankruptcy.
Is Credit Card Debt Included In The Chapter 13 Payment Plan?
Credit card debt is considered general unsecured debt. Typically this credit debt included in your bankruptcy filing is not paid in full.
How Long Does A Chapter 13 Bankruptcy Stay On Your Credit Report?
Chapter 13 bankruptcy can stay on your credit report for 10 years from the filing date. Just like Chapter 7 bankruptcy.
Similarly, some creditors can only report this for 7 years.
What Happens If You Don’t Make A Scheduled Payment From The Payment Plan?
If your income decreases, you could:
- Modify the amount you are paying to your creditors.
- If you are unable to pay a required debt, the court may allow you to pay off the debt due to financial difficulties.
Note: These financial difficulties could be, for example, a serious illness.
Another option in the event that none of the above are viable could be to switch to Chapter 7 bankruptcy.
Finally, the last option would be to dismiss your bankruptcy case. The problem in this case is that you would still have an outstanding debt balance in addition to the interest not collected by creditors during your Chapter 13 bankruptcy case.
Will Payment Of Student Loan Debt Be Waived Under Chapter 13 Bankruptcy?
In order for the court to consider it, you must file a petition known as a lawsuit to determine debt relief.
- It is very likely that the bankruptcy court will not discharge your debt since Chapter 13 rules consider it a priority debt to be paid in full;
- Convincing the court to partially waive is very complicated;
- Still, the court will consider extreme hardship factors to contribute to your inability to pay off the student loan.
- Permanent disability;
- Good faith efforts to repay the loan in the past;
- Condition of poverty and others.
Best Chapter 13 Bankruptcy Lawyers In New York
At Ortiz & Ortiz we will help you prepare a plan that suits you. We will guide you on how to file for bankruptcy in New York . This will put you in an advantageous position for the future by:
- Helping you understand which debts have the potential for significant reductions in total repayment.
- Outlining exempt and non-exempt assets of yours that will be examined by the court and your creditors.
- Presenting a convincing argument that yields a beneficial outcome for you.
- Counseling you each step of the way toward a satisfying and concrete finish and much more.
Only a court of law can force creditors to reduce total payments, and that is why it is crucial that debtors are well represented.
You might not be legally required to hire an attorney. However, investing in professional help today could have long-lasting consequences upon your life and financial stability.