Who should file for Bankruptcy under Chapter 13
About two out of eight ten people filing for Bankruptcy file under Chapter 13, the reorganization bankruptcy. It is not as popular as Chapter 7, and that is because Chapter 13 requires the filer to pay a certain portion of their income to their creditors over a period of 3 to 5 years. The debt is only wiped away (or discharged) after that payment plan is completed. Simply put, it's more expensive. So why do some people file under Chapter 13? Generally it is because their income is too high, or they have too many assets.
Individuals with Above-Average Incomes
If you have a higher income than the income of people in your state with your household size, Chapter 13 may be the only form of relief available to you. Those figures are published by the census bureau, but they are not cutoffs. If you make above that income, our Congress has decided that you must suffer first before your debts are wiped away. Generally, that means that you must pay some of your income to your creditors on a monthly basis, through the courts.
Some people make too much, some people don't have enough expenses, and some people are right on the border. Our experienced attorneys will look at your pay stubs and tax returns, and we will be able to tell you where you stand before we file anything. We will offer practical advice, like whether retaining your assets is a wise financial decision, or whether you need to acquire more assets prior to filing.
Individuals who Own Liquid Assets
Even if you do not have a high income, your assets may limit you to a Chapter 13. Let's say that you own three new vehicles that you paid in full, and they are worth a total of $25,000.00. If you were to file for Chapter 7, or the liquidation bankruptcy, the Trustee may sell one of your cars before granting you a discharge. Without adequately protecting your assets upon filing, forfeiting assets is a distinct possibility in Chapter 7.
Under Chapter 13, there is no liquidation aspect, so you get to keep your assets. However, in exchange for keeping your assets, you have to pay creditors some payment every month for three to five years. Each case is different, and precisely what that payment is, and for how long it goes, will depend on your specific situation.
Individuals Who Are Behind on their Mortgage
Lastly, Chapter 13 is often a good solution for individuals who are behind on their mortgage payments. If you are looking down the barrel of a Foreclosure, filing for bankruptcy under Chapter 13 may be your best option, because it automatically stops any foreclosures or Sheriff's sales. In fact, any bankruptcy filing will give you an automatic, thirty day injunction against any adverse activity by any creditor. That is, the moment you file for bankruptcy, you get at least a month of no calls, no lawsuits, no foreclosures, no garnishments, no asset freezes, and no Sheriff's sales. In Chapter 13, that protection, also known as the automatic stay, will remain in place for the lifetime of the bankruptcy so long as you remain current on all your payments.
Talk to a Bankruptcy Lawyer First
Chapter 13 is significantly more complex than Chapter 7, and it requires the assistance of a Bankruptcy lawyer. Whether you opt to file with us or with someone else, we urge you to speak to an attorney before speaking to anyone else. As mentioned, a Chapter 13 plan lasts between three and five years, so your case will be active for at least that long. Many things can happen during those years. Babies are born, houses are sold, jobs are lost or gained, and income may go up or down. You will need your attorney at your side for all those contingencies. Our consultations are always free, and you always speak to an attorney, so don't struggle alone, call us today.
This content was written on behalf of Greg Prosmushkin.