Who Can Declare Chapter 13 Bankruptcy
Any individual can seek protection from creditors under Chapter 13, including wage earners and self-employed people. Corporations and partnerships cannot use Chapter 13.
Theres also a debt limit. Only individuals with unsecured debts of less than $465,275 and secured debts of less than around $1.396 million can use Chapter 13. The caps are adjusted from time to time to keep up with inflation.
Bankruptcy Waiting Period Conventional Requirements
One of the most important things youll need to do is wait until your bankruptcy has been discharged. This means that the debt has been wiped out and youre starting fresh.
The amount of time you need to wait after your bankruptcy is discharged depends on the type of bankruptcy and your loan type.
A convnetional loan will require at least four years since your discharge date for a Chapter 7, and two years for a Chapter 13, before you can be considered for a mortgage.
We have other programs availalbe that require only a two year waiting period.
Some Of The Benefits Of Filing For Chapter 13 Bankruptcy Include:
- Stops foreclosure and provides the property owner an opportunity to bring current the arrears over time
- Stops vehicle and mobile home repossessions and may provide an opportunity to restructure these obligations
- Provides relief from student loan collection actions for the duration of the repayment plan
- Provides protection from creditors seeking to collect past-due domestic support obligations
- Provides protection from taxing authorities attempting to collect past-due taxes
- May allow for the stripping off of fully unsecured junior mortgages on residential real property
- May allow for the impairment and discharge of non-support marital obligations
- May allow for the impairment and discharge of unsecured debts
- Allows for the debtor to retain all of their assets
If you are considering filing for Chapter 13 in North Carolina, contact our board-certified North Carolina bankruptcy attorneys today to discuss your options. You may also want to review the basics of North Carolina chapter 13 bankruptcy as established by the government. We will review your case for free, and you do not need to pay us any fees upfront to file a case. Instead, all fees and costs related to the bankruptcy filing can be rolled into your eventual payment plan.
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Chapter 13 Bankruptcy Disadvantages:
- You can file a Chapter 13 bankruptcy in as little as a few days, but the plan often takes 3 or 5 years before you are discharged.
- Another drawback addresses any additional sums of money that the debtor receives during the bankruptcy period. Thus, if the debtor receives an increase in salary, then there may be implications on your Chapter 13 plan payment.
- Chapter 13 can also be very expensive if you are in a 100% Chapter 13 Plan. In this plan, you pay back your unsecured creditors 100% of what is owed.
- Extra income in Chapter 13 bankruptcy can actually increase your monthly payment, making your Chapter 13 payment too high.
- You cannot skip a Chapter 13 bankruptcy payment, but you can often skip payments in debt settlement. That said, there are 5 options when you miss a Chapter 13 payment.
What Are Alternatives To Chapter 13 Bankruptcy
The process to file bankruptcy is long, stressful and costly. When youre struggling to keep food in the fridge and bills at bay, you might think Chapter 13 Bankruptcy is your only optionbut its not.
Listen, Chapter 13 Bankruptcy is just another debt management tactic. But instead of providing complete relief, it brings years of headache and financial setback. It should be used as a last resort only.
Please hear this: There is hope on the other side of all the financial stress youre feeling. There is hope when creditors are calling and letters are piling up on the kitchen table. You are not hopeless.
Heres the truth: There are other ways to get out of debt and come out on the other sidewithout filing for bankruptcy or worrying about your credit score. Not only will these bankruptcy alternatives give you relief from the endless piles of bills, but theyll also give you your life back:
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Why File For Chapter 11
The main reason to file for Chapter 11 bankruptcy is to be able to prevent a business from permanently closing. Of course, the company needs to be in such a position that the restructuring of its debt makes financial sense. By staying in business while reorganizing debt, the company has a fighting chance at solvency. The downsides are its expense and complexity. Smaller businesses often lacked the resources to use it.
Thats why the Small Business Reorganization Act of 2019, which went into effect on Feb. 19, 2020, added a new Subchapter 5 to Chapter 11 designed to make bankruptcy easier for small businesses. The act defines them as entities with less than about $2.7 million in debts that also meet other criteria, according to the U.S. Department of Justice, and it imposes shorter deadlines for completing the bankruptcy process, allows for greater flexibility in negotiating restructuring plans with creditors, and provides for a private trustee who will work with the small business debtor and its creditors to facilitate the development of a consensual plan of reorganization.
Are You Eligible For Chapter 13 Bankruptcy
The following steps involve learning whether you’re eligible, how much you’ll pay, and the challenges you might face during your plan.
Debt limits. You can have only so much debt in Chapter 13 bankruptcyyou’ll find the Chapter 13 bankruptcy debt limitations here. If your total debt burden is too high, you’ll be ineligible, but you can file an individual Chapter 11 bankruptcy instead.
Income requirements. When you file a Chapter 13 bankruptcy, you must prove you can afford to pay your monthly household obligations and the monthly plan payment. The bankruptcy court won’t “confirm” or approve your proposed Chapter 13 plan if you don’t have any income or it’s too low.
Person status. Only individuals and sole proprietors qualify for a Chapter 13 debt dischargeit isn’t available to small businesses and companies. However, small business owners who file individually will include personally guaranteed business debts in the plan. And from a practical standpoint, a business owner’s improved financial condition can benefit a small business indirectly, so Chapter 13 might be worth pursuing.
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How Are They Determined
The methodology for creating these limits is outlined within the Housing and Economic Recovery Act of 2008, or HERA. This act requires the Federal Housing Finance Agency to establish and maintain an index for tracking average home prices in counties across the country. In short, HERA ties loan limits to median home values.
In most cases, the conforming loan limit for a particular county is set at 115% of the median home value for the area. It cannot, however, be more than 50% above the baseline mentioned at the top of this page.
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Comparison Of Chapter 7 And Chapter 13 Is An Example Of Two Chapters
Chapter 7 bankruptcy will require you to sell large amounts of assets to repay creditors. The process can be completed quickly, and all earnings and property you receive after declaring bankruptcy are exempt from distribution to creditors. The entire process is typically completed in six months.
Chapter 7 does have its downsides. Lenders that have filed for foreclosure on your property wont be able to stop the proceedings temporarily. However, any other debts such as mortgage liens will be collected once the case is closed. The loan is still owed to your cosigners.
If you apply for Chapter 13 protection, you can keep all your possessions. This does not extend the time you have to repay your creditors after the bankruptcy court has made its ruling. You can file a Chapter 13 bankruptcy after a Chapter 7 bankruptcy is finalized to reduce any debts remaining from the Chapter 7 discharge.
Chapter 13 protects loan cosigners from collection attempts if the bankruptcy settlement requires that you repay the entire amount. Chapter 13 allows for a two-year wait period if you have to file Chapter 7. Chapter 7 has an eight-year waiting window.
Each chapter of Chapter 13 bankruptcy comes with its set pitfalls. Chapter 13 bankruptcy cases can have higher legal costs than Chapter 7 cases. Your repayment obligation may continue for many years. The majority of debt obligations can be discharged by Chapter 7.
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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.
Chapter 13 And The Cares Act
The federal government rolled out all sorts of Covid-19 relief packages, and the CARES Act made bankruptcy filings available to businesses and individuals affected by the pandemic.
Among other things, repayment plans were extended to seven years. The bill was signed in March 2020, and many provisions have expired. Your bankruptcy attorney should be able to apply any provisions that are still applicable.
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Restrictions During Chapter 13 Bankruptcy
Chapter 13 bankruptcy carries with it a few restrictions which are not present in Chapter 7 bankruptcy, the monthly plan payment being the most obvious. In addition, you will not be allowed to incur any more debt without court approval. As in any situation where you still hold liens against major assets, you will have to maintain insurance coverage on those assets.
Reasons To File For Chapter 13
The main reason for an individual to file for Chapter 13 bankruptcy is to prevent the liquidation of all their assets. In particular, it is frequently used to avoid the forced sale of an individuals home, which Chapter 7 cant do. Chapter 11 may also prevent a forced home sale, but is usually too expensive and complicated a procedure for most people. Of course, not everyone has the choice to use Chapter 13. Having a stable income is a crucial qualifier, and there is that debt limit of $2.7 million as well.
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Understanding Chapter 13 Bankruptcy In Florida
Only Florida residents can file Chapter 13 bankruptcy in Florida. The Chapter 13 debtor must have sufficient income to make current payments to their secured creditors throughout the bankruptcy . The debtor is required to pay their disposable family income for the benefit of their unsecured creditors. The Chapter 13 debtor must pay all disposable income to unsecured creditors until their creditors are paid in full or for five years, whichever comes first, and the debtor must pay their unsecured creditors through the bankruptcy at least as much as they would receive from your nonexempt property if the debtor had filed a liquidating Florida Chapter 7 bankruptcy.
Chapter 13 bankruptcy has eligibility debt limits of approximately $465,000 of unsecured debt and approximately $1,400,000 of secured debt . People with debt above these limits are not eligible to file a Chapter 13 bankruptcy. Unsecured debts include personal loans, medical bills, credit cards issued by banks , and other credit cards used to purchase consumable items such as clothing, food, vacations, etc. Secured debts include those debts where the creditor has a security interest in your property to guarantee.
What Is A Chapter 13 Repayment Plan
Bankruptcy can help you get out from under considerable debt, but not all forms of bankruptcy allow you to keep many of your most important assets along the way. Those with regular income can file a Chapter 13 bankruptcy to help keep key assets like a home or car. In Chapter 13, debts are restructured over a three- or five-year period. If you make regular payments over that time, then some or all of your debts may be discharged.
The Chapter 13 repayment plan is the legal document that lays out how youll pay back your creditors. It must be drawn up and filed with the bankruptcy court within 14 days of filing the bankruptcy petition , after which the judge and your creditors will have a chance to assess and possibly challenge the plan. If the court ultimately OKs your plan, youll then follow through to pay back your eligible debts.
Its possible to DIY your own Chapter 13 plan, but the process can be complicated and detail-heavy. Thats why its best to work with a bankruptcy lawyer, who can help make sure your repayment plan meets all requirements for approval.
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The Chapter 13 Process
First, find a bankruptcy lawyer who will give you a free evaluation and estimate on what youll have to pay to file.
The cost to file Chapter 13 bankruptcy consists of a $313 filing fee and fees charged by a bankruptcy attorney. As for documents and other information, you must provide:
- A list of creditors and the amount of their claims.
- Proof of income.
- List any properties you own and any leases in your name.
- List your monthly living expenses.
- Provide tax information, specifically your federal tax return and any statements of unpaid taxes.
Chapter 13 petitioners cannot have had a bankruptcy petition dismissed in the 180 days before filing. They must also take a course approved by the U.S. Department of Justice U.S. Trustee Program in that 180-day span.
After you file your paperwork, youll then get a letter from the court clerk notifying you, your creditors and your court-appointed trustee that collection activities on your accounts have been suspended. That means creditors have to stop hounding you for payments.
You will propose a repayment plan, and a bankruptcy judge or administrator will hold a hearing to determine whether its fair and meets legal standards. Creditors can object, but most judges allow filers to alter their plans several times.
After that, its just a matter of sticking to your repayment plan. If youre late or miss payments, the trustee could move to dismiss your Chapter 13 case. You dont want that.
Chapter 13 Bankruptcy Doesnt Ruin Your Mortgage Chances
If you filed for Chapter 13 bankruptcy or were recently discharged, you might wonder whether you can buy a new home or refinance.
The good news is, getting a mortgage is easier after Chapter 13 bankruptcy than Chapter 7.
You might even qualify while youre still in Chapter 13. Government-backed FHA, VA, and USDA loans let you apply for a mortgage as early as one year into your repayment plan.
Keep in mind, you need to make those payments on time. And you still need to meet loan requirements.
But if you meet these guidelines, you should have a good shot at getting a mortgage during or after Chapter 13.
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What Happens Next After Chapter 13 Bankruptcy
After a court approves a repayment plan, the debtor is responsible for making the budget work. The court may bring the case back for further consideration if the debtor fails to make the agreed-upon repayments. This could include the sale of the property to meet obligations. A trustee can also request that the lawsuit be dismissed.
Although bankruptcy may offer debtors a reprieve from creditors, it can also come with a credit reporting penalty. Under the federal Fair Credit Reporting Act, a Chapter 13 bankruptcy will be recorded on your credit report for seven-year. This situation can make it difficult for debtors to obtain loans in the future.
Chapter 13 bankruptcy can benefit people with large debts and who fear losing their homes to bankruptcy. A bankruptcy attorney should be consulted by anyone considering this course.
You Dont Get To Keep Assets If You Fail
The idea of keeping your home and car and personal belongings is an attractive part of Chapter 13. But if the case fails or is dismissed, protection for those assets disappears. With a fairly high number of unsuccessful cases, this has to be kept in mind.
ProPublica told of a Memphis mother earning $9 an hour with rent, $19,000 in student loans and $1,100 in a car loan as some of her expense. When her work hours were cut, she turned to bankruptcy and filed Chapter 13 because she wasnt familiar with the difference between that and Chapter 7.
But what she called a miscommunication with her attorney led to her case being dismissed less than six months after she filed. Any money she paid went to her attorney and court fees, and interest on her loans including a car loan interest many times above the norm accrued. Collections agencies started contacting her soon after the dismissal. She was pondering filing again to keep her car so she could to go work.
Another Memphis woman filed Chapter 13 four times in seven years, all in hopes she could keep her car. She lost her job 18 months after the first filing and saw her case dismissed. She used unemployment benefits to make payments after filing the second time, until they ran out. Another dismissal. She filed a third time, and the case again was dismissed. She got another job, filed again and admitted she had spent the better part of a decade filing bankruptcy to keep her car.
Was it worth it?
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