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Chapter 13 is an interesting option facilitated with bankruptcy that allows filers to repay their debt as per a practical payment plan that could last up to 5 years. The program requires consistent income and a good amount of disposable income to be able to accommodate the expenses that could be incurred due to the 3-5 years payment plan. Know more about chapter 13 and bankruptcy in general at https://www.recoverylawgroup.com/bankruptcy/.
Features of chapter 13 bankruptcy in a nutshell
- Consistent income with some disposable income is mandatory
- The filer should be up to date with tax returns and any dues to be eligible to file for chapter 13
- The threshold for unsecured debt is $394,725. The threshold is $1,184,200 for secured debts. If a filer has debt beyond these thresholds, they might have to file chapter 11
- If the bankruptcy case has been previously dismissed in less than 180 days or if any of the bankruptcy court guidelines are not followed, the filer might not be able to file for bankruptcy under chapter 13
- The filer can be eligible for a discharge only if he has not availed of a discharge by filing for bankruptcy in the last 4 years. To be specific, if bankruptcy was filed under chapter 13, the filer is eligible for a discharge after 2 years of completing the chapter 13 repayment schedule. The filer might have to wait 4 years before availing a discharge if filed using chapters 7, 11, or 12 previously.
- A payment plan must be proposed by the debtor himself and it must be approved by the bankruptcy court. The payment will be then classified based on the debt type, such as priority or non-negotiable debts such as student loans, alimony, child support, etc. The second debt to et priority is the secured debt and the lastly prioritized debts are the unsecured ones.
Pros and cons of chapter 13
Pros-
- Chance to retain essential assets like house, car, etc.
- Consolidated payment and no headache of dealing with multiple lenders. A filer can consolidate a single cheque and provide the same to the bankruptcy trustee and the bankruptcy trustee shall distribute the payment to different lenders as agreed. This reduces stress and ensures consolidated dealing with minimum complications.
- When the maximum amount of loans is being adjusted in the payment plan, the chapter 13 plan provides a shield against the co-signers or co-debtors from the lenders. This can be a big relief for the co-debtors which might not be the case in chapter 7 bankruptcies.
- The credit score loss suffered in chapter 13 is relatively lesser as compared to chapter 7. Since the discharge of debt is lower and there is an attempt to pay off the maximum number of debts, the impact on credit score is a lot lower and it can be made up in due course of time.
Cons-
- The biggest con with chapter 13 is the amount of discharge received. If you have fewer assets and you don’t mind losing them, then the discharge availed through chapter 13 might not be satisfactory. Sometimes, the filer might end up with no discharge at all because 3-5 years is a significant amount of time to repay most of the debts.
- The second flaw of chapter 13 payment is the risk associated with non-payment as per the schedule. A filer can’t afford to fall behind with the obligations as it will lead to no discharge and dismissal of the bankruptcy. This can add a huge burden on the filer in a time of distress
- The third and final flaw with chapter 13 is with respect to having to take permission of the bankruptcy court to make any financial decisions or arrangements. For instance, taking any new credit or getting into a new financial agreement. This can be interfering and bonding and when it is for a period of 3-5 years it can suffocate a lot of people.
It sometimes isn’t enough to know it all. It is important to know what is best for a particular situation as well. This can be achieved by dialing 888-297-6203 and connecting with world-class attorneys from Los Angeles & Dallas, TX to understand the best option based on your situation.