Chapter 13 Bankruptcy: What Is It and How Does It Work
In this age, with its high living costs and numerous financial obligations, debt can pile up before you even realize it, and you can go bankrupt. Here, filing for bankruptcy can help individuals who are unable to pay their creditors back, as they can seek partial or complete relief from their debts. A court order typically imposes bankruptcy, typically requested by the debtor. In such a situation, you can benefit from the federal bankruptcy code’s Chapter 13.
Chapter 13, commonly referred to as the wage earner’s bankruptcy, grants borrowers temporary relief from debt collection activities and can stop creditors’ attempts to seize your property. Most debts are not forgiven in Chapter 13 bankruptcy, unlike Chapter 7. However, Chapter 13 allows you to pay off unsecured debt like credit card balances while making up missed mortgage payments.
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The Eligibility for Chapter 13
Chapter 13 is reserved for individuals, not entities like corporations or LLCs.
You can file for Chapter 13 if your combined unsecured and secured debts do not exceed $2,750,000. You must also have a regular income.
Your tax filings must also be up to date, and you must provide evidence that you have filed your state and federal tax returns for the last four years.
How Does Chapter 13 Work?
Once you submit a bankruptcy petition, all credit collections by debt collectors, such as phoning, writing, visiting, suing, and garnishing salaries, get put on hold. Chapter 13 prevents creditors from pursuing co-signers on debts and temporarily stops foreclosure and repossession actions.
But you must demonstrate the ability to make regular payments. The trustee will review the income and debt data and set up a hearing to determine whether the plan is acceptable. The Chapter 13 plan functions as a debt consolidation strategy because the trustee receives the debtor’s payments. Chapter 13 grants you three to five years to settle your debts.
Duration of a Chapter 13 Bankruptcy on Your Credit Report
A Chapter 13 filing will stay on your credit report for seven years, beginning when you submit the bankruptcy petition.
The Advantages of Chapter 13
Chapter 13 keeps your house from going into foreclosure. You can halt foreclosure actions and eventually catch up on past-due mortgage payments. While you have to liquidate your assets in a Chapter 7 bankruptcy, you can keep them in Chapter 13.
Chapter 13 enables you to prolong the repayment period of secured debts by rescheduling them. This gives you more time to protect your assets before they are seized.
This plan also covers third parties who share your responsibility for consumer debt. You will make the planned payments to a Chapter 13 trustee, who distributes payments to creditors. This prevents interaction directly with creditors.
How Frequently Can You File a Chapter 13 Bankruptcy?
Another Chapter 13 petition can be filed within two years of your previous filing date of a Chapter 13 case. If you previously filed a Chapter 7 bankruptcy, you must wait four years to file for Chapter 13 bankruptcy.
Getting a Title Loan While in Chapter 13
You might be wondering: can I get a title loan while in chapter 13? The answer depends on your trustee and your lender. There is a requirement that Chapter 13 bankruptcy trustees must authorize new debts while the bankruptcy is still being processed, so you need your trustee’s permission.
Endnote
If you’ve fallen behind on your debts despite earning, consider filing for bankruptcy under Chapter 13. Under Chapter 13, you will have time to reorganize and plan without losing your house and possessions. You must repay debts in 3-5 years rather than under a year, like in Chapter 7. So if you want to keep your assets and it’s possible to make monthly payments, then Chapter 13 bankruptcy is a suitable option for you.
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