High secured debts such as mortgaging of home or car payment can pose a problem around repayment for some of the citizens. Initially, the bank that has lent the money contacts the debtor regarding the payment updates after it has defaulted for a month or two – the bank resorts to persistent phone calls (low-level adverse proceedings). They can steer towards high-level adverse proceedings such as foreclosure or repossession if the debtor continues to default. The debtor in certain scenarios may just need some extra time as he can facilitate the means to pay the moneylender. Chapter 13 bankruptcy is a federally backed repayment plan that provides a maximum of five years to gather grounds and make these accounts stable.
It is important to note that the moneylenders, during the repayment period, cannot enforce the debtor or resort to any adverse actions without special permissions from the bankruptcy court. With utmost security and peace, the debtor can repay the moneylenders, sometimes sooner than the five years and restart their financial conditions afresh using the guaranteed Bankruptcy Code.
Know of your qualification for Chapter 13 bankruptcy
The prime need to opt for Chapter 13 bankruptcy is the retaining of the assets/ properties of the debtor who has altered and defaulted the payment of some of his secured debts. But it is key to note that the debtor also needs to satisfy the below conditions to be eligible for Chapter 13 bankruptcy
- Value of the secured debt cannot exceed $922, 975 for the debtors. If the secured debts are larger in value, the court sees the repayment of the same in three to five years as quite difficult. For this Chapter 7 can be a recommended option
- Value of unsecured debt should be lesser than $307, 675 and this amount is inclusive of all outstanding debts in credit cards, medical bills, and any other unsecured debts. If the load of the unsecured debt is higher, then Chapter 7 bankruptcy is recommended
- No prior discharges of bankruptcy either in Chapter 7 or Chapter 13 should have been obtained by the debtor – specifically, no Chapter 7 filing & discharge in the last four years and no Chapter 13 filing & discharge in the last two years
- Depending on the income of the debtor who satisfies the above conditions, the repayment the period can be either three or five years
Process of Chapter 13 bankruptcy
It is advised to the debtor to undertake a debt counselling course prior to the filing of bankruptcy. Lots of online or telephone courses are available for all debtors to ensure they complete this requirement – a small investment of time and money is needed for this from their side. After this course has been finished, the debtor just needs to get the right assistance to file the bankruptcy petition on his behalf. Searching for the best attorney near me would be the debtor’s search criteria.
The bank attorney that the debtor liaise with, will file the petition for Chapter 13 bankruptcy. The attorney will make a list of all assets, the debts, the statement of monthly income and expenses. The debtor can propose a repayment plan based on his monthly income and expenses information. It is important that the disposable income of the debtor is ample enough to make payments comfortably each month and meet the repayment schedule to clear away all of the arrears of the secured debts.
Trustee – Debtor meeting
Approximately after 6 weeks, there will be a meeting scheduled for the debtor with the Chapter 13 bankruptcy trustee. Validating the debtor’s identity through a driver’s license and the Social Security card information that will be furnished by the debtor, the bankruptcy trustee proceeds to verify and review all the shared documentation with regards to the Chapter 13 bankruptcy case. All recent federal and state income tax returns will be reviewed by the trustee and he/ she may also seek additional documentation to substantiate the financial status of the debtor prior to approving of the repayment plan. The bankruptcy trustee conducts this hearing on behalf of the judge.
The meeting is also an avenue for the trustee to question the debtor about his identity, the assets possessed and regarding their income. Very rarely, this meeting sees the attendance of some of the creditors who are associated with his case. The repayment plan and its concerns if any are discussed in this catch-up. The first payment towards debt consolidation is usually after 30 days of the petition filing irrespective of the repayment plan approval.
The confirmation hearing
The confirmation hearing is headed by the judge, who decides whether to approve the repayment plan. The hearing is also extended to creditors for their availability to raise any concerns or objections. The debtor may not be expected to attend this hearing.
In the wake of the plan approval, the employer of the debtor may be ordered to make the payments directly to the creditors by deducting the same from his wages. In cases of valid reasons for objecting or if the debtor is self-employed, other avenues of payment are sought and approved.
At the end of the repayment period, the outstanding unsecured debts may be discharged. The collateral consequences of the unsecured debt (tax liens if any), will remain intact until it is separately attended to for resolution.
Getting a Chapter 13 bankruptcy discharge
A debtor education class has to be completed by you if you are, the debtor awaiting a discharge order of your debts. Similar to counselling classes, these are also available as online or telephone courses. Being on spouse support, child support or other domestic support obligations also need to be certified.
Some quick pointers on the discharge of the debts in Chapter 13 bankruptcy
- On completion of the plan, most of the debts are discharged. Those that cannot be discharged include domestic support obligations like child/ spouse support, debts arising due to drunk driving, any wilful injuries that have caused severe personal injury or death, some student loans, criminal fines and restitution and debts that have arisen because of fraudulent activities
- If there are large monthly payments to creditors, the debtor may be entitled to lower the payment amount or the interest rate. Payments towards house property are an exception here – they may not undergo changes with regards to the amount but cannot be wholly modified as a loan
- In cases of back taxes, an extension for payment or repayment over a period of time is possible. This will prevent your properties from foreclosure for the sake of payments
- The payment towards unsecured creditors can be negotiated by a bank attorney, Los Angeles regions through the Recovery Law Group, to pay less than 100% of the claims. The Recovery Law Group firm also operates in Nevada and Texas states
Key benefits of the Chapter 13 bankruptcy
- Three or five years can be obtained for repayment of the claims
- Prevent interest accumulating on the unsecured debts in most of the cases
- Stop any kind of collection activities from the person who co-signed a debt for you
- Get to retain a property which otherwise would have been liquidated to pay you creditors
- End all future obligations from creditors from whom you haven’t received complete services
- Prevent all legal actions against debts that you have incurred prior to a bankruptcy filing
- The repayment plan can be customized to pay it sooner or also propose asset selling through the Chapter 13 bankruptcy plan for quicker payment of the debts
- Requesting a hardship discharge in times of adverse conditions can help mitigate the rough execution of plan during an unforeseen crisis
- Beyond a hardship discharge, if you still need relief, the plan can be dismissed or converted to a Chapter 7 bankruptcy