Home / What’s Ch. 13 Bankruptcy & How Does It Work?

What’s Ch. 13 Bankruptcy & How Does It Work?

  • Struggling with overwhelming debt? Chapter 13 bankruptcy lets you reorganize your debt while keeping your assets.
  • Propose a repayment plan based on your disposable income and repay creditors over 3-5 years under court supervision.
  • Unsure if Chapter 13 is right for you? Call The Credit Pros to discuss your credit report and explore all your options.
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Chapter 13 bankruptcy lets you reorganize your debt while keeping your assets. You repay creditors over 3-5 years under court supervision.

Here's how it works: You propose a repayment plan based on your disposable income. A trustee collects and distributes your payments to creditors. During this time, you're safe from foreclosure, repossession, and creditor harassment. After you complete the plan, the court discharges your remaining eligible debts.

Thinking about Chapter 13? Call The Credit Pros. We'll check your credit report and talk about whether bankruptcy is right for you. We might find alternatives to help you avoid bankruptcy. Don't put it off - money problems only get worse. Let's chat about your situation and find the best solution for you.

What Is Chapter 13 Bankruptcy And How Does It Work

Chapter 13 bankruptcy is a debt repayment plan for individuals with regular income who are struggling financially. You can keep your assets while restructuring your debts over 3-5 years. Here's how it works:

You propose a repayment plan to catch up on missed payments. A court-appointed trustee oversees your case and distributes payments to your creditors. You make monthly payments to the trustee based on your disposable income.

When you file for Chapter 13, you'll benefit from:
• Halting foreclosures and repossessions
• Protecting cosigners on your personal debts
• Potentially discharging some of your unsecured debts

To be eligible, you need:
• Regular income
• Unsecured debts under $419,275
• Secured debts under $1,257,850

We want you to keep in mind:
• You'll need to stick to a strict budget
• Your credit score will be impacted for 7 years
• You can't discharge alimony, child support, most student loans, or recent taxes

We recommend that you explore all options before filing. Chapter 13 offers you a path to financial stability, but it's a serious commitment with long-term consequences. In a nutshell, if you're drowning in debt but have a steady income, Chapter 13 bankruptcy might be your lifeline to regain control of your finances and keep your assets.

How Does Chapter 13 Differ From Chapter 7

Chapter 13 and Chapter 7 bankruptcy differ in several key ways that you should understand before making a decision:

You keep your property in Chapter 13, while in Chapter 7, non-exempt assets may be sold. With Chapter 13, you'll follow a 3-5 year repayment plan, but Chapter 7 eliminates qualifying debts without repayment. Chapter 13 takes years to complete, whereas Chapter 7 resolves in just 3-4 months.

Your credit score will take a hit with both, but Chapter 13 has a less severe effect than Chapter 7. If you have secured debts like mortgages, Chapter 13 is more helpful, while Chapter 7 primarily tackles unsecured debts.

To be eligible for Chapter 13, you need a regular income, but Chapter 7 requires you to pass a means test. Here are some key differences:

• Chapter 13 offers a gradual debt resolution, while Chapter 7 provides a quicker financial reset
• You can catch up on mortgage arrears with Chapter 13, but Chapter 7 doesn't offer this option
• Chapter 13 is more flexible for those with higher incomes or valuable assets

When deciding between the two, consider your financial situation, goals, and eligibility carefully. We recommend consulting a bankruptcy attorney for personalized advice tailored to your specific circumstances.

All in all, you'll want to weigh the pros and cons of each option before making a decision. Remember, you're not alone in this process, and there are experts ready to guide you through this challenging time.

Who Qualifies For Chapter 13 Protection

You qualify for Chapter 13 protection if you have a regular income as a wage earner, self-employed individual, or sole proprietor. Your secured debts must be under $1,010,650, and your unsecured debts below $336,900. You need to have filed your tax returns for the past 4 years and show that you have enough income to meet repayment obligations after allowed expenses.

Chapter 13 protection offers you several benefits:

• You can keep your home and stop foreclosure
• You're able to reschedule secured debts (except your primary residence mortgage)
• You can protect co-signers on consumer debts
• You can consolidate payments through a court-appointed trustee

When you file for Chapter 13, you propose a 3-5 year repayment plan to the court. This allows you to keep your assets while paying your creditors over time. You'll also benefit from:

• Stopping creditor actions against you
• Catching up on mortgage payments
• Potentially discharging remaining qualifying debts after you complete the plan

It's important to note that you can't discharge certain obligations like child support, alimony, student loans, and most taxes. We recommend that you speak with a bankruptcy attorney to fully understand your options and determine if Chapter 13 is the right choice for your situation.

The gist of it is, if you have a regular income and your debts fall within certain limits, you might qualify for Chapter 13. This can help you keep your assets and manage your debts, but you should consult with a professional to make sure it's the best path for you.

How Long Does A Chapter 13 Repayment Plan Last

Chapter 13 repayment plans typically last 3-5 years, depending on your income level. If you have below-median income, you'll usually have a 3-year plan. For above-median income, you'll often have a 5-year plan.

Here are some key points you should know about Chapter 13 repayment plans:

• Your plan can't exceed 60 months
• You'll make monthly payments to a trustee
• The trustee distributes funds to your creditors
• You can catch up on missed mortgage or car payments
• It partially repays your unsecured debts

It's crucial that you adhere to the plan - if you miss payments, you risk dismissal. However, if you successfully complete the plan, you'll erase remaining dischargeable debts.

Chapter 13 offers several benefits for you:

• You get to keep your home and vehicles
• You'll have a fresh financial start after completing the plan
• It provides a structured approach to debt repayment

The multi-year process requires that you have steady income and commitment. However, it offers advantages over Chapter 7 bankruptcy for those who qualify. We recommend that you consult a bankruptcy attorney to determine if Chapter 13 is right for your situation.

Remember, while a Chapter 13 repayment plan is a long-term commitment, it can provide you with a structured path to financial recovery and debt relief. You'll have the opportunity to keep your assets while working towards a debt-free future.

Professionals can help you with your Credit Score after Bankruptcy.

Let Professionals help you develop the best possible strategy to improve your credit score after bankruptcy.

Call (888) 411-1844

What Debts Can I Discharge Through Chapter 13

Chapter 13 bankruptcy allows you to discharge many unsecured debts after completing a 3-5 year repayment plan. Here's what you can wipe out:

• Credit card balances
• Medical bills
• Personal loans
• Utility bills
• Old income taxes (over 3 years old)
• Civil court judgments
• Debts from property settlements in divorce

You can discharge some debts in Chapter 13 that you can't in Chapter 7:

• Debts incurred to pay non-dischargeable tax obligations
• Homeowners association fees
• Certain debts for willful/malicious property damage

However, you can't discharge:

• Recent income taxes
• Child support/alimony
• Most student loans
• Court-ordered restitution

For secured debts like mortgages and car loans, you typically need to pay them in full to keep the property. The amount you repay unsecured creditors depends on your disposable income. If you're a higher earner, you may need to repay more.

We recommend you consult a bankruptcy attorney to understand which specific debts you can discharge in your unique situation. They can provide personalized advice based on your financial circumstances.

At the end of the day, Chapter 13 bankruptcy can offer you a fresh start by allowing you to discharge many unsecured debts after completing your repayment plan. Just remember, it's crucial that you understand which debts qualify for discharge before proceeding.

How Does Filing Chapter 13 Affect My Credit Score

Filing Chapter 13 bankruptcy initially lowers your credit score, with higher pre-filing scores often seeing larger drops. You'll see the bankruptcy on your credit report for 7 years, impacting your ability to borrow. However, Chapter 13 offers you a path to rebuild your credit over time:

• Your debt-to-income ratio improves as you pay down debts, positively affecting 30% of your FICO score.
• You boost 35% of your score with on-time payments under the 3-5 year repayment plan.
• Your credit utilization decreases as you pay off debts, further helping your score.

While you'll experience a short-term hit to your credit, Chapter 13 provides you with long-term benefits:

• You keep your assets while reorganizing debts.
• The structured repayment plan helps you regain financial footing.
• You can improve your creditworthiness with consistent payments.

We understand this is a tough decision for you. We recommend that you consult a bankruptcy attorney to evaluate your specific situation and develop strategies to minimize credit damage while resolving your debts. Lastly, remember that with patience and disciplined financial management, you can improve your credit profile after bankruptcy.

Can I Keep My Home And Car In Chapter 13

Yes, you can usually keep your home and car in Chapter 13 bankruptcy. Here's how it works:

You'll create a 3-5 year repayment plan to catch up on missed payments while continuing your regular mortgage and car payments. When you file, the automatic stay stops foreclosure or repossession. You can use exemptions to protect equity in your house and vehicle. Homestead exemptions shield some or all home equity, while motor vehicle exemptions protect a portion of your car's value.

To keep your assets in Chapter 13, you need to:

• Have regular income for plan payments
• Stay current on future mortgage/car loans
• Prove you can afford payments in your proposed plan
• Use available exemptions strategically
• Consider loan modifications if needed

We recommend you speak to a bankruptcy lawyer about your specific situation. They'll review your debts, income, and assets to determine the best approach for keeping your home and car through Chapter 13. Finally, remember that while Chapter 13 can be complex, you have options to protect your most important assets – so don't lose hope if you're struggling financially.

What Is The Trustee'S Role In Chapter 13

In Chapter 13 bankruptcy, you'll work closely with a trustee who plays a crucial role as an impartial administrator. Here's what you need to know about the trustee's responsibilities:

The trustee reviews your repayment plan to ensure it's fair and feasible. They collect your monthly payments and distribute funds to creditors according to the approved plan. You'll find that the trustee verifies your financial disclosures and documents, ensuring everything is accurate and complete.

During the process, the trustee conducts the meeting of creditors (341 meeting) where you'll answer questions under oath. They monitor your compliance throughout the 3-5 year repayment period and recommend plan approval or modifications to the court. The trustee also negotiates with creditors on your behalf and keeps the court updated on your case progress.

It's important to understand that while the trustee acts as a mediator between you and your creditors, they're not your advocate. Their role is to balance everyone's interests while following bankruptcy laws. To ensure a smooth process, you should:

• Provide accurate financial information
• Make timely payments
• Communicate any major financial changes promptly

Remember, you don't get to choose your trustee - the court appoints them. Their goal is to facilitate a fair process for all parties involved.

Big picture: You'll work closely with your Chapter 13 trustee throughout your bankruptcy. By understanding their role and cooperating fully, you can increase your chances of successfully completing the process and achieving debt relief.

Professionals can help you with your Credit Score after Bankruptcy.

Let Professionals help you develop the best possible strategy to improve your credit score after bankruptcy.

Call (888) 411-1844

How Much Do I Pay Monthly In Chapter 13

Your monthly Chapter 13 payment depends on your specific financial situation. When you file, the court reviews your income from the past six months and subtracts allowed expenses to calculate your disposable income. This amount is then used to pay your debts over a 3-5 year period.

Several factors influence how much you'll pay each month:

• Your income sources (including wages, bonuses, alimony, and social security)
• Your necessary living expenses
• The types of debt you have (priority, secured, unsecured)
• Legal requirements in your area

Your payment plan aims to:

1. Fully cover priority debts
2. Keep secured assets you want to retain (like your home)
3. Pay unsecured creditors at least what they'd receive in Chapter 7

You may see fluctuations in your payments if your income varies. To get an accurate estimate, you should consult a bankruptcy attorney. They can analyze your specific financial situation and create a feasible plan tailored to your needs. This way, you'll maximize your debt relief while meeting your basic needs and legal obligations.

While online calculators can give you a rough idea, they often make assumptions that might not apply to your situation. For the most accurate assessment, we recommend working with a professional who understands your local laws and can customize a plan for you.

Overall, remember that your Chapter 13 payment is unique to your situation. By seeking professional advice, you'll get a clear picture of what you can expect to pay monthly and how it will impact your financial future.

What If I Can'T Make Chapter 13 Payments

If you can't make your Chapter 13 payments, don't panic. You have several options to address this situation:

First, you should contact your bankruptcy attorney immediately. They can guide you through the next steps and help you understand your options.

Next, reach out to the trustee before missing a payment. You should explain your situation and show that you're proactive in addressing the issue.

Consider requesting a plan modification. You can:
• Lower your monthly payments
• Extend your repayment period (up to 5 years max)
• Temporarily suspend your payments

If you're facing severe financial difficulties, you might explore a hardship discharge. Alternatively, if you're eligible, you could convert to Chapter 7 bankruptcy.

As a last resort, you might consider voluntary dismissal, but be aware that this will result in losing bankruptcy protections.

It's crucial that you act quickly. Even one missed payment can lead to case dismissal, and the trustee may file a Motion to Dismiss, making it harder for you to fix the problem.

Your options will depend on:
• Why you're having difficulty making payments
• How long you've been in Chapter 13
• How much you've already paid
• Your current financial situation

We understand this is a stressful situation for you. You should communicate openly with your attorney and trustee. They're often willing to help if you're proactive in addressing the issue.

As a final point, remember that Chapter 13 is designed to give you a fresh financial start. Stay focused on that goal as you work through this challenge, and don't hesitate to seek help when you need it.

Can Chapter 13 Stop Foreclosure Or Repossession

Yes, Chapter 13 bankruptcy can stop foreclosure and repossession. Here's how it helps you:

When you file for Chapter 13, you immediately get protection from creditors. This means they can't foreclose on your home or repossess your car. You'll create a 3-5 year plan to catch up on missed payments while keeping up with current ones.

Unlike Chapter 7, Chapter 13 lets you keep your assets if you stick to the plan. You can spread overdue mortgage payments across the repayment period, making them more manageable. If your home's value is less than your primary mortgage, you might even strip off secondary mortgages.

For car loans, you may be able to reduce the amount you owe to the vehicle's current value. This could lower your payments. Chapter 13 also gives you time to explore other options, like negotiating with lenders or selling assets.

Here are some key benefits:

• You get immediate protection from creditors
• You can keep your home and car
• You have time to catch up on missed payments
• You might reduce what you owe on your car loan

Remember, for Chapter 13 to work, you need enough income to cover both ongoing payments and your repayment plan. We strongly recommend you consult a bankruptcy attorney. They can help you assess your situation and develop a strategy that works for you.

To put it simply, Chapter 13 can be your lifeline if you're facing foreclosure or repossession. It gives you breathing room and a structured plan to get back on track. But you need to act quickly and get professional advice to make it work for you.

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