Chapter 13 Bankruptcy: How Do I Qualify
During the height of the coronavirus pandemic, many mortgage lenders offered payment deferrals and other relief packages. As 2021 dawns and these promotions end, these banks will swiftly demand deferred payments which, as far as they are concerned, are now past-due payments. Legally, banks can initiate foreclosure proceedings immediately in these cases.
Fortunately for these distressed debtors, most people qualify for Chapter 13 bankruptcy. This federal debt relief program immediately stops foreclosure and most other adverse creditor actions. Furthermore, Chapter 13s protected repayment period lasts up to five years. This time period gives most families ample opportunity to erase past-due mortgage payments and other secured debt delinquency.
Formal Qualifications
All bankruptcy petitioners must complete a pre-filing credit counselling class. By the time they reach out to us, most debtors have already completed such a course. If they must do so, the class is usually available online. These online classes only cost a few dollars and only take a few minutes.
Similarly, all petitioners must complete a post-fling debt management class. Many people take this class online. Others take advantage of trustee-sponsored seminars. These seminars usually last an hour or more. But they are free, and many debtors find nuggets of wisdom that help them quickly raise their credit scores.
Informal Qualifications
Reach Out to Dedicated Lawyers
The Chapter 13 Discharge
The bankruptcy law regarding the scope of the chapter 13 discharge is complex and has recently undergone major changes. Therefore, debtors should consult competent legal counsel prior to filing regarding the scope of the chapter 13 discharge.
A chapter 13 debtor is entitled to a discharge upon completion of all payments under the chapter 13 plan so long as the debtor: certifies that all domestic support obligations that came due prior to making such certification have been paid has not received a discharge in a prior case filed within a certain time frame and has completed an approved course in financial management . 11 U.S.C. § 1328. The court will not enter the discharge, however, until it determines, after notice and a hearing, that there is no reason to believe there is any pending proceeding that might give rise to a limitation on the debtor’s homestead exemption. 11 U.S.C. § 1328.
The discharge releases the debtor from all debts provided for by the plan or disallowed , with limited exceptions. Creditors provided for in full or in part under the chapter 13 plan may no longer initiate or continue any legal or other action against the debtor to collect the discharged obligations.
Behind On Auto/home Loan
As I said before, financial troubles come in all shapes and sizes. Sometimes we see people with only 8k in debt- but they are single and have 3 kids and make $15.00 per hour. 8k in debt might as well be a million dollars if you are in the same situation.
Occasionally, we meet with guests who say look- I have no unsecured debt, but I lost my job and I am six months behind on my mortgage and they set a foreclosure sale- and I am in a panic! First, I would be in a panic too so I completely understand the concern. Second, there are remedies available. In a case like this we can file a chapter 13 bankruptcy, cure the mortgage arrears over 3-5 years and you do not lose your home! If you are like my client who lived in Eagan, Minnesota and was behind on his home, this is welcome news!
Same is true for a car loan. If you fall behind and you need the vehicle to go to work to earn a paycheck, keeping the vehicle will be very important! Chapter 13 allows us to pay the arrears or the whole vehicle loan over time and modify the terms of the loan. Slick!
Guests may not realize these tools exist if they have no unsecured debt- but they do exist and we use them often to protect our guests.
Recommended Reading: Bankruptcy Renting Apartment
The Chapter 13 Process
First, you should find a bankruptcy lawyer who can provide you with a free evaluation and estimate to file.
The cost to file Chapter 13 bankruptcy consists of filing fees and fees charged by a bankruptcy attorney. Petitioners need to pay a $313 filing fee to the bankruptcy court. They also need to provide:
- A list of creditors and the amount of their claims
- Disclosure of the amount and sources of the debtors income
- A list of the debtors property, as well as an accounting of all contracts and leases in the debtors name
- A breakdown of the debtors monthly living expenses
- Tax information, including a copy of the debtors most recent federal tax return and a statement of any unpaid taxes.
Chapter 13 petitioners must stipulate that they havent had a bankruptcy petition dismissed in the 180 days before filing due to their unwillingness to appear in court. Also, anyone seeking bankruptcy protection, must undergo from an approved agency within 180 days of filing a petition.
Shortly after filing bankruptcy, the debtor also must propose a repayment plan. A bankruptcy judge or administrator will hold a hearing to determine whether the plan meets the requirements of the bankruptcy code and is fair. Creditors may raise objections to the plan, but the court has the final say.
Debtors can arrange to make up delinquent payments over time, but under Chapter 13 rules, all new mortgage payments from the time of filing must be made on time.
Success Rate For Chapter 13 Bankruptcy
Consumers should be aware that there is less than 50-50 chance filing for Chapter 13 bankruptcy will be successful, according to a study done by the American Bankruptcy Institute .
The ABI study for 2019, found that of the 283,313 cases filed under Chapter 13, only 114,624 were discharged , and 168,689 were dismissed . Thats a success rate of just 40.4%. People who tried representing themselves call Pro Se filing succeeded just 1.4% of the time.
You May Like: Leinart Law Firm Dallas
Chapter 13 Vs Chapter 7
Chapter 13 bankruptcy is often called the wage earners bankruptcy. A petitioner must have regular income to enter a Chapter 13 debt repayment plan. This form of bankruptcy is mostly beneficial to consumers with valuable assets and a high source of income.
Chapter 7 bankruptcy is designed for those who truly cant afford to repay their debts. It is, by far the most common type of bankruptcy with 483,988 filings in 2019 compared to 283,413 Chapter 13 filings.
In Chapter 13 bankruptcy, you retain your assets while extending repayment of debts over a 3-5-year period. In Chapter 7, your assets are liquidated except those that are exempt such as your house and car and turned over to a court-appointed bankruptcy trustee, who sells them and uses the proceeds to pay off creditors. The rest of the debt is discharged.
To qualify for Chapter 7, you must earn less than the median income in your state for a family of your size. Filers who dont pass the means test can look to Chapter 13 instead.
The Benefits Of A Chapter 13 Plan
There are two common reasons why people file for Chapter 13 bankruptcy over Chapter 7.
Under a Chapter 7 bankruptcy, the trustee liquidates your assets to be sold for the benefit of your creditors. This is only available for those under a certain income level. A Chapter 13 bankruptcy does not have the same income requirements as Chapter 7. Instead, it lets you propose a 3-5 year repayment plan to pay off your debt, which allows you to do things such as:
- Save for your home from foreclosure
- Protect your car from repossession
- Stop interest from your tax debts
- Catch up on tax debt, family support obligations , and other nondischargeable debt.
A Chapter 13 plan lets you catch up on your overdue payments for the period of your bankruptcy. Consider a Chapter 13 reorganization if youve already invested a lot into your property, such as your car or your house. It also lets you pay off your living expenses while still paying off the debt you owe.
However, if your goal is simply to discharge your debt for a fresh start, then Chapter 7 maybe your best option.
Of course, what we shared here works for the general population. However, everyones case is different. Talk to our experienced West Virginia bankruptcy lawyers to know what options you have available and whats best for you.
Don’t Miss: Can You Lease A Car While In Chapter 7
Why Do People File For Bankruptcy
No one’s financial circumstances are exactly the same when it comes to bankruptcy. But many bankruptcy filers head to court for similar reasons. Here are the three most common reasons for bankruptcy filings, according to the American Bankruptcy Institute:
Take The Second Debtor Education Course And Receive Your Discharge
Youâve made it to the end! Taking the second debtor education course is the very last step before receiving your discharge.
As long as youâve followed the terms in your Chapter 13 plan, youâll receive a discharge at the conclusion of your case. Any unpaid balances on most unsecured debts will be eliminated. For example, if you were required to pay your unsecured debts back at 10%, youâll be relieved of the obligation to pay back the 90% balance.
Also Check: How Many Times Has Donald Trump Declared Bankruptcy
Qualifying For Fha Loans After Chapter 7 Bankruptcy And Chapter 13 Bankruptcy
Under both VA and FHA Chapter Bankruptcy Guidelines, the waiting period to qualify for a FHA Loan after a Chapter 7 Bankruptcy.is two years after the discharge dates of Chapter 7 and Chapter 13 Bankruptcies for an automated underwriting system approval.
However, there is an exemption with qualifying for VA and FHA Loan After Chapter 13 Bankruptcy Discharge date. The exception is there is NO WAITING PERIOD AFTER A CHAPTER 13 BANKRUPTCY DISCHARGED DATE.
Needs to be a manual underwrite. Borrowers will not get an approve/eligible unless the Chapter 13 Bankruptcy discharged date has been seasoned for at least two years. That is why it needs to be manually underwritten.
Remember that all manual underwrites need verification of rent.
Chapter 13 Bankruptcy Allows You To Reorganize Your Debts
Chapter 13 bankruptcy can be a favorable option for people who can still repay a portion of their debts. Individuals who do not make enough income to pay back their debts and need total financial relief may need to file under Chapter 7.
A Chapter 13 bankruptcy typically involves developing a repayment plan lasting for three to five years, and the plan is based on the debtors personal finances and ability to pay. This allows individuals to refinance their debts, meaning that some of their debts may be discharged while they make reasonable payments for the remaining portion.
Read Also: How To File For Bankruptcy In Texas Without A Lawyer
Do You Qualify For Chapter 13 Bankruptcy
To qualify for Chapter 13 bankruptcy:
-
You must have regular income.
-
Your unsecured debt cannot exceed $419,275, and your secured debt cannot exceed $1,257,850.
-
You must be current on tax filings.
-
You cannot have filed for Chapter 13 bankruptcy in the past two years or Chapter 7 bankruptcy in the past four years.
-
You cannot have filed a bankruptcy petition in the previous 180 days that was dismissed for certain reasons, such as failing to appear in court or comply with court orders.
Even if you qualify for Chapter 13 bankruptcy, make sure you know the difference between Chapter 7 vs Chapter 13 bankruptcy.
If you dont qualify for Chapter 13, consider looking into other debt relief options.
Look into whether you have too much debt. If you dont qualify for Chapter 13, consider looking into other debt relief options.
Do I Qualify For Bankruptcy Under Chapter 7 If I Already Filed A Bankruptcy Case
If you have filed a prior bankruptcy case, you must determine if you qualify to receive another bankruptcy discharge. While it’s possible to file multiple bankruptcy cases in a life time, a certain amount of time must pass between cases before someone can ask for another discharge. If your prior case didn’t result in a discharge, there’s no time limitation but you may have to deal with a shorter than usual automatic stay.
The time that has to pass between cases depends on which chapter of the Bankruptcy Code the cases are filed under. This article contains a detailed overview of all time limits for both Chapter 7 and Chapter 13 bankruptcy cases.
Don’t Miss: What Type Of Bankruptcy Did Donald Trump File
Create A Budget And Figure Out The Status Of Your Income
You can file a Chapter 13 bankruptcy if you are unemployed. However, you must be receiving income from another verifiable source other than from employment. If you receive government benefits, financial assistance from friends or family, or monthly pension payments, for example, you will be able to file a Chapter 13 if you can show that your income is enough for you to make monthly plan payments.
Once you create a budget and discover that you don’t receive enough income each month to pay your monthly living expenses in addition to your Chapter 13 monthly plan payments, you will not be able to proceed. Youâll need to prove to the bankruptcy courts that you have a feasible plan in order to move forward with your case.
Who Qualifies For Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also called straight or liquidation bankruptcy, can wipe out many types of unsecured debt. Not just anyone can file for Chapter 7 bankruptcy, though. Here are some of the requirements to pursue Chapter 7 bankruptcy.
- The average of your monthly income in the previous six months must be lower than the median income for the same-sized household in your state otherwise, you must pass what’s known as a means test. This test determines whether your disposable income is high enough to make partial payments to unsecured creditors. If you fail the means test, don’t despair: You still might qualify for Chapter 13 bankruptcy.
- You can’t have filed for Chapter 7 bankruptcy in the previous eight years.
- You can’t have filed for Chapter 13 bankruptcy in the previous six years.
- If you attempted to file for Chapter 7 or 13 bankruptcy but your case was tossed out, you must wait 181 days or more before refiling.
- You typically must finish an individual or group credit counseling course offered by an approved credit counseling agency within 180 days before you file for bankruptcy.
- Even if you’re eligible to file for bankruptcy, a judge could throw out your case if it’s found you’re attempting to defraud creditors. An example: You run up charges on a credit card with the goal in mind of declaring bankruptcy to steer clear of paying the debt.
Don’t Miss: Can I Be Fired For Filing Bankruptcy
Mortgage Guidelines On Va And Fha Loans During Chapter 13 Bankruptcy
Both FHA and VA Guidelines in qualifying for a mortgage during and after Chapter 13 Bankruptcy are the same.
VA And FHA Chapter 13 Bankruptcy Guidelines Update:
Many home buyers who are either in Chapter 13 Bankruptcy Plan or just had a discharge are often confused when they consult with lenders to see if they qualify for VA and/or FHA Loans.
One of the most often questions I get from my borrowers are the different types of answers they get from lenders who they consult with on the waiting period. Most lenders have overlays on government and conventional loans.
Just because borrowers are told no by one lender does not mean they do not qualify with another lender with no mortgage overlays. They get different answers as of the waiting period during and after Chapter 13 Bankruptcy in qualifying for FHA Loans and VA Loans.
Fha Chapter 13 Bankruptcy Guidelines To Qualify For Mortgage
This Article Is About VA And FHA Chapter 13 Bankruptcy Guidelines To Qualify For Mortgage:
Borrowers can qualify for a mortgage for an FHA and VA loan during Chapter 13 Bankruptcy repayment plan. This holds true for both home purchase and refinances transactions. However, borrowers qualifying for an FHA or VA loan during Chapter 13 Bankruptcy repayment plan need to be a manual underwrite. In this article, we will cover the following topics:
- Qualifying for an FHA and VA loan during Chapter 13 Bankruptcy Repayment plan
- Eligibility Requirements to qualify for a mortgage during Chapter 13 Bankruptcy repayment plan
- Does the Chapter 13 Bankruptcy need to be discharged?
FHA and VA Agency Guidelines on Chapter 13 Bankruptcy are exactly the same.
Read Also: Why Did Fizzics Fail
Chapter 13 Can Get Rid Of A Second Mortgage
One powerful benefit offered by Chapter 13 bankruptcy but not Chapter 7 is the ability to remove unsecured junior liens from your house in a process known as lien stripping. If the balance of your first mortgage exceeds the value of your home, your second mortgage or another junior lien is considered wholly unsecured. In that instance, it can be eliminated through lien stripping in Chapter 13 bankruptcy.
The downside is that you’ll have to prove the value of your home to the court. Hiring an appraiser to testify can be costlyas well as paying for your attorney’s time. Although if you’re paying a lot of unsecured debt, the attorney might be able to roll it into your plan payment without changing the monthly amount. Find out more about removing a second mortgage in bankruptcy.