Hearing the words “bankruptcy” can be scary, but it shouldn’t be! Making the decision to file is life-changing, and one that can make a huge difference in your future. The Bankruptcy Code has many chapters, all talking about different scenarios where it might be a good idea for someone to file for bankruptcy. For people with a higher income, Chapter 13 is the best option. First, let’s go over exactly what it means to file for Chapter 13 Bankruptcy.
What is Chapter 13 Bankruptcy?
The United States Courts define Chapter 13 Bankruptcy as “allowing a debtor to keep their property and pay debts over time, usually three to five years”. In short, what it means is that you get to propose terms for how you can pay your debts over a period of time, during which your creditors can’t prosecute you. Your payment plan and the time it’s set up for will depend on your income. The payment plan is not controlled by the amount of the debt. In Minnesota, most chapter 13s result in paying 5-20% of the debt. The unpaid part gets discharged, which means that you don’t owe it anymore.
What’s so good about Chapter 13 over other types of bankruptcy filings?
1. Staying in the Home you Know
Under Chapter 13, you can stop a foreclosure that has been initiated and take care of your payments under your Chapter 13 plan. This means that while you get your finances together, the rest of your family can stay put, which helps make the process easier for everyone.
2. Protection from Creditors
When you file for Chapter 13, what happens is that all your debts are put into one payment that covers all. You’re no longer paying directly to the people you owe; under Chapter 13, your debt payment is disbursed to a trustee, who then pays all your creditors. In addition, your creditors can’t purse you directly, which protects you from abusive collection techniques and harassment at your home or work. They also cannot garnish you or freeze bank accounts. This protection even works against student loans, which survive bankruptcy.
What debt can I include on a Chapter 13 filing?
When it comes to filing for Chapter 13 bankruptcy, the law doesn’t treat every kind of debt the same way. In fact, you might not even pay all your debts in full.
Your payment plan will focus on the following three: priority debts, secured debts, and unsecured debts.
- Priority debts: This is debt that will, as the name says, take first priority in your payment plan. If you owe taxes, child support payments, or any fees for the filing itself, your bankruptcy trustee will take care of these first under your plan.
- Secured debts: These are debt that has something to back them up with as collateral, like a mortgage or a car loan. Your payment plan will specify if you have to pay those debts in full or just the value of the asset that is used as collateral. In order for you to be eligible for Chapter 13 bankruptcy, the value of your secured debts cannot be higher than $1,184,200.00
- Unsecured debts: These are very commonly called “consumer debt” and include debt such as credit cards, medical bills, and personal loans. As you can see, these are the lowest priority in a Chapter 13 repayment plan – which means there is a chance, depending on what your other balances look like, that these might not be taken care of during the life of your payment plan. Remember, your Chapter 13 repayment plan is only set to three to five years. To be eligible for Chapter 13 bankruptcy, the value of your unsecured debts cannot exceed $394,725.00
What about student loans?
Student loans do not get discharged at the end of Chapter 13, but it can still help keep them in control. The student loan companies are prohibited from collecting outside of the Chapter 13, and must take whatever they can get in the chapter 13, which usually isn’t very much. They cannot take tax refunds or garnish paychecks while the chapter 13 is open.
The Chapter 13 payment can be as low as $100 per month, depending on your income. Lots of people with unsupportable student loan payments stay in chapter 13 forever because it goes for 5 years, and you can file again right afterwards. This is particularly useful for private student loans and retirees who have Parent Plus loans. $100/month is much better than the normal student loan payment.
We Can Help You Navigate The Bankruptcy Process
Before you decide to file Chapter 13 bankruptcy, think about the nature of your debts and the amount of debt you have. Would most of your debt be considered a priority, secured or unsecured debt? Can you make your current debt payments with the income you have and without risking your living expenses and basic needs like food and shelter? A lot of the kind of repayment plan you’re put on and whether you qualify for Chapter 13 bankruptcy at all depends on your income. Make sure you provide the courts as much information as possible!
Most importantly, know that if you’re considering filing for bankruptcy, you’re not alone. At Walker & Walker Law Offices, PLLC, we’ve made our name helping people like you navigate bankruptcy and rebuilding their lives, no matter how uphill the climb might seem. Contact us today with your questions – we’re happy to work around your schedule. Let’s get your life back on track today.
United States Courts. (n.d.). Chapter 13 – Bankruptcy Basics. Retrieved from https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-13-bankruptcy-basics
VanSomeren, L. (2019, August 15). Chapter 13 Repayment Plan: How Does It Work? Retrieved from https://www.creditkarma.com/advice/i/chapter-13-bankruptcy-repayment-plan/#