Filing bankruptcy is a practical solution to overwhelming debt issues, and the decision to pursue Chapter 13 can also be a means of preventing foreclosure. For these and other legitimate reasons, millions of people file for Chapter 13 each year.
This form of bankruptcy is a method of reorganizing debt which can allow individuals to meet their financial obligations without the worry of losing their home, car or other major assets. Under Chapter 13 bankruptcy, your debt is consolidated into a single monthly, interest free payment. You make your monthly payment to the bankruptcy trustee and the trustee’s office distributes payments to the different creditors included in your filing. The period of the repayment plan averages three to five years.
Chapter 13 can eliminate medical bills, credit card bills and other types of unsecured debt. It can also influence the repayment and interest structure of secured debt like mortgage and car loans.
Qualification for Chapter 13
To be eligible for Chapter 13, you must pass the means test, which is a thorough financial examination of all the income, expenses, debts and assets you have. The means test is central to qualifying but affects the structure and schedule of your repayment plan as well. It must show you have no reasonable ability to repay your current debts given your financial circumstances.
In some cases, individuals who are not eligible for Chapter 13 may still qualify for Chapter 7. Your ability to set up a payment schedule and realistically make payments is important. Payment schedules are usually three and five years in length. The payment amount will be based on the amount of your consolidated debt and your income and regular expenses.
If you do not have enough income to make monthly payments according to a three to five year repayment schedule, you may not qualify for Chapter 13 and may need instead to file Chapter 7. A bankruptcy attorney can help you make this determination before filing bankruptcy.
Click here to see a Chapter 13 bankruptcy checklist.
Filing Chapter 13 Bankruptcy
While filing bankruptcy without an attorney is permissible by law and can be done, the success rate without legal help is low. The filing process is complex, as are the laws that govern it. For this reason, hiring a bankruptcy lawyer should be your first step.
A bankruptcy attorney can help you choose the right chapter to file given your specific financial concerns and circumstances, and most offer a free consultation. You will leave the consultation with fee schedule information and the paperwork required to complete the means test.
The current federal fees for filing Chapter 13 are $281.00. Most attorneys will also require you to pay at least half of their own legal fees for handling your case at the commencement of their work on your bankruptcy. In other words, you will need to pay these fees at your next appointment when you submit your completed financial inventory forms and review that information with your attorney. Following this meeting, your bankruptcy lawyer will file the appropriate paperwork to open your Chapter 13 case with the federal bankruptcy court in your region.
What Happens After Filing
After the case is opened, you must complete a credit counseling course with an approved provider. The class must be finished before your file is reviewed by the bankruptcy judge. Failure to complete the class will result in your case being dismissed. Your attorney can help you find a qualified course.
The bankruptcy court reviews your file and a judge will rule on your eligibility for Chapter 13. If you meet eligibility requirements, a payment plan will be established and you’ll be informed of that plan. Your creditors will also receive notice of the bankruptcy and the payment schedule and amounts.
Most debtors who file Chapter 13 never set foot in a court room, unless a creditor contests the filing. For most, the only meeting they’re required to attend is the meeting of creditors, which is typically held with the bankruptcy trustee rather than in a court room.
After your case is ruled on and a payment schedule is enacted, you must complete another class. This one will cover debtor education and is intended to provide you the knowledge and skills necessary for better financial management in the future. This class must be completed before your Chapter 13 is discharged and failure to finish the course will result in your bankruptcy being dismissed.
Read more about what happens after filing for bankruptcy here.
Cost of Filing Chapter 13
There are several fees associated with filing a Chapter 13 bankruptcy. These include the federal filing fees and the legal fees paid to your attorney. You must also pay for the pre-filing and post-filing classes required under the bankruptcy system. A bankruptcy attorney can help you find courses with approved providers. Courses are offered locally, online or through teleconferencing. Some are available for little to no cost and your attorney will be able to guide you in finding classes you can afford.
Click here to speak with a bankruptcy attorney in your area for a free consultation.