Even though Chapter 7 bankruptcy is considered the most straightforward and quickest types of bankruptcy, there are situations when Chapter 13 bankruptcy is the preferred move. That is because each type of bankruptcy has different tools to offer.
For instance, saving your home might be your desired goal—but Chapter 7 doesn’t have the mechanism to do that. Chapter 13, on the other hand, allows filers to keep their assets as long as they make up for missed payments.
Additionally, while Chapter 7 wipes out dischargeable debt, Chapter 13 has provisions in place to protect your assets. Understanding your options can seem like a daunting task, especially considering how complicated the United States legal system is. If you do not understand the ramifications of bankruptcy or need counsel when it comes to making an informed decision, it is advisable to get a Chapter 13 attorney on your side.
When to File for Chapter 13 Bankruptcy
Chapter 13 is designed to help debtors who have missed payments to repay creditors. That includes taxes, mortgages, student loans, and other nondischargeable debt. If you owe these types of debts—those which bankruptcy cannot erase with Chapter 7—then Chapter 13 is a prime option to consider.
Debtors may also file if they are behind on car or home payments. Additional reasons include having liens on your assets or property greater in value than the possessions themselves, and having assets that are worth more than the exemptions. Note that these scenarios outline times when you can file—but is critical to know if you can file, too.
Here are some of the qualifications for filing for Chapter 13 bankruptcy:
- A business—even if only one person runs it—cannot file for Chapter 13.
- You cannot be a stockbroker or commodity broker.
- You must pass the means test, which measures your ability to pay back debts based on assets, income, and expenses. This test is not the same as the means test for Chapter 7; if your income is too low, you will not be eligible for the repayment program.
- Your tax filings must be up to date.
Filing for Chapter 13 Bankruptcy
Once you have decided on moving forward with bankruptcy, the first step is to submit a repayment plan. The plan will lay out exactly how you will repay creditors; an appointed trustee will handle these paymenttransactions. The amount of the payments will depend on your ability to pay and does not have to meet the debt in full.
This flexibility in setting forth your financial future is one of the strengths of Chapter 13. You can customize the terms within reason and with approval from the trustee. You can also dismiss the bankruptcy process entirely if you no longer need the protection, or if you want to convert the procedure to Chapter 7.
Once you successfully file for Chapter 13, the trustee will invoke an automatic stay. This order stops all creditor and debt collector collection efforts except for child support and alimony. Creditors will also not be able to:
- Contact or harass you
- Garnish your wages
- Repossess your car
- Foreclose your home
- File a civil lawsuit against you with the intent of a money judgment
- Take money from your bank account
Getting Your Debts Discharged
Chapter 13 is not a quick process, but filers can discharge their debt in three to five years. Once a debtor is legally forgiven, they have financial obligations to the debt collectors or creditors. This scenario is regardless of whether the original debts were paid in full or not.
A Chapter 13 bankruptcy will stay on your credit record for up to 10 years; as time goes on, though, the negative impacts of your Chapter 13 filing will lessen.
Learn More AboutChapter 13 Bankruptcy
Bankruptcy was such a fundamental part of Americana that the founding fathers included it in our US Constitution. The idea is that everyone should be able to pursue their goals of prosperity, even if that means getting a fresh start every once in a while. Don’t let the stigma associated with bankruptcy prevent you from making your best financial decision.
Understanding the intricacies of bankruptcy law can seem overwhelming…and Knoxville Bankruptcy Attorney is here to help. Since the establishment of our firm, we have assisted people across Knoxville, TN, in filing for Chapter 13 on terms that work for them, not for the creditors. Find out what we can do for you by scheduling a meeting at today.