File for Chapter 13 Bankruptcy

There are several different kinds of bankruptcy in North America, and many people get confused about which option is best. As individual, you can either file for Chapter 7 or Chapter 13 bankruptcy. It is important to understand each option before deciding which type to use. The following is a guide on how to file for Chapter 13 bankruptcy.

Steps

Determining Whether to File Chapter 13 Bankruptcy

1. Decide whether bankruptcy is the best choice for you. If you are in trouble financially, there are a number of things you can do to get yourself back on track. Bankruptcy should be considered your last resort. In general, people file for Chapter 13 bankruptcy as a way to stop a home foreclosure. Again, this should be your last resort, so try working with your creditors to find a different solution before resorting to bankruptcy.
   • Before filing, also consider that filing for bankruptcy completely destroys your credit score. In some cases, your score may be reduced by several hundred points. In addition, it will stay on your credit report for 10 years, and will greatly reduce your ability to get new credit or loans during this time.
   • It is generally a good idea to file for bankruptcy if your creditors are garnishing your wages, suing you, or trying to repossess your assets.
2. Determine if Chapter 13 is the right bankruptcy option. Chapter 13 is an alternative to Chapter 7 and is designed for people with a regular income who want to pay off their debts but need a certain amount of time to do so. In Chapter 13, debtors repay their creditors either in full or in part over a period of up to three years. In some cases they are allowed to repay their creditors over five years. Anyone can apply for Chapter 13 bankruptcy if their unsecured debts are less than $383,175, and their secured debts are less than $1,149,525. However, corporations, partnerships, and those who have had a bankruptcy petition dismissed in the past 180 days cannot file under chapter 13.
   • Chapter 13 also allows you to keep your assets. In contrast, a Chapter 7 filing may force you to sell your possessions (such as non-essential vehicles, boats, and expensive electronics).
   • If you are a farmer or a fisherman, you should file for Chapter 12 bankruptcy instead.
3. Understand what happens to your assets. Secured debt (debt that, if unpaid, will result in the repossession of an asset like a car or home) is treated differently in Chapter 13 than in Chapter 7. Your mortgage payments and payments on a new car (purchased less than 2.5 years ago) cannot be discharged, but your car loan can be modified down to a set rate of 5.25 percent. An older car, however, can be "crammed down," to its true value, freeing you of paying any interest on the loan (but you still have to pay back the car's value).
   • Unsecured debts, like credit card debt and medical bills, is paid back according to your ability to pay it. Essentially, all of your income that doesn't go towards essentials will be paid to your creditors during the repayment period.
   • Attorney's fees incurred during the trial are paid off during the repayment plan as well.
4. Know which loans are not discharged or modified. In a Chapter 13 filing, your primary resident mortgage loan cannot be reduced or discharged. Instead, mortgage payments will be increased to cover any missed payments as part of your repayment plan. In addition, tax debts owed to the government and domestic payments (child support and alimony) cannot be discharged. However, some tax debts may be spread out or modified, depending on your situation. Finally, Chapter 13 bankruptcy does not allow you to discharge your student loan debts. Under your repayment plan, you may get a break from paying student loan payments but your debt will not go down.
   • If you are trying to Repair Student Loans Through Bankruptcy, your only option is file for Chapter 7 bankruptcy. Even then, you may have a hard time getting the court to discharge this debt.

Filing for Bankruptcy

1. Decide whether or not to retain legal counsel. Chapter 13 is extremely complex. That's why it's advisable to hire an attorney. A bankruptcy plan can pay some creditors as little as ten cents on the dollar, up to 100% of the claim. Your attorney can help design a plan as favorable to you as possible, based on your unique position.
   • "Pro-se" filings (those done with legal help) are rarely successful. For example, less than 2% of Chapter 13's filed without a lawyer in the State of Colorado in 2012 were confirmed.
   • If your case is dismissed rather than confirmed, a foreclosure sale is likely to ensue, and you could find yourself homeless. In addition, you will not be able to file again for 180, giving debts more time to accrue.
   • Filing without a lawyer will require you to spend time researching the law and representing yourself, which may be impossible time-wise for someone with regular employment.
   • Keep in mind too that your legal fees are spread out over your repayment period along with your other debts, which reduces the immediate cost to you.
2. Attend Credit Counseling. Before you can file for Chapter 13 bankruptcy, you must complete credit counseling. This must be done with a court-approved agency. Work through the counseling to obtain your credit counseling certificate. You will attach this certificate to your bankruptcy petition.
3. File a petition. You must file a petition with the bankruptcy court in your home district. Along with the petition, you must also file schedules of assets and liabilities, current income and expenditures, executory contracts, and unexpired leases. A schedule of exempt assets is also filed. You can download the required forms online at http://www.uscourts.gov/forms/bankruptcy-forms. You should work with your attorney to fill out the forms.
   • Filing requirements will differ slightly by state. Either work with your lawyer or take time to research individual filing requirement by searching online for these requirements for your state.
   • Filing the petition is a long and complicated process in itself and involves a whole packet of forms. Make sure you to take the time to complete each one carefully and accurately.
4. Pay your fees. When filing for bankruptcy, there are a number of fees. You must pay a court filing fee of $310 and a miscellaneous administrative fee. Once the petition is filed, most legal actions are “stayed". This means that most creditors will not be able to continue lawsuits, garnish wages, or call you on the telephone to demand payment.
   • To make sure your creditors are aware of the stay on your assets, you will need to fully complete a creditor mailing list during your petition filing that includes contact information for all of your creditors.
5. File a plan of repayment. Your repayment plan is your plan to repay all or some of your outstanding debts back to creditors in a period not exceeding five years. This can be filed with the petition or up to 15 days later. When creating your plan, it is best to obtain legal assistance, as filing will vary between jurisdictions. Remember to factor in paying for secured debts like your house and car if you want to keep them. These payments may actually increase so that you can pay off overdue payments over the course of your plan.
   • If your income is over the median for your state, your repayment plan must be five years long. If it is less, your plan can be between three and five years.
   • Successful plans commit all disposable income (income not spent on living expenses and necessity debt payments like mortgage and vehicle payments) to paying off debt.

Going Through Bankruptcy Proceedings

1. Attend a meeting of creditors. This is typically held 20 to 40 days after you file the petition. The meeting is an important part of the process, as it allows your creditors to ask you questions regarding your assets and financial situation. During this meeting you are under oath, so make sure you don't stretch the truth of your financial situation even a little bit. If you miss this meeting, your bankruptcy case will be thrown out.
2. Attend the confirmation hearing. This hearing will be held in court, and a bankruptcy judge will determine if your plan of repayment is feasible and meets all bankruptcy code standards. Creditors are informed of this hearing and are allowed to object to confirmation. This occurs most commonly when payments in the plan total less than what they would be in a Chapter 7 liquidation or when the debtor’s plan does not commit all of his or her projected disposable income for the three-year period of the plan.
3. Begin making your payments. Within 30 days of filing the plan, you must start making your payments to the designated attorney, even if your payment plan has yet to be approved by the court. If your plan is not approved, you can modify it or consider changing over to a Chapter 7 liquidation. (Chapter 7 should be considered the very final option).
   • You may also be required to attend some sort of financial planning or debtor education course by the judge before your debts can be discharged. Make sure to take these courses seriously and complete them as soon as possible.
4. Discharge your debts. If you stay current on all of your payments during the repayment plan, including taxes, mortgage, domestic, and other required payments, your debts eligible for discharge will be discharged at the end of the repayment period. If your plan worked such that you paid less than 100 percent of your unsecured debts during the plan, the remainder will be discharged in full upon successful plan completion. This does not include those debts that are not able to discharged in Chapter 13, like student loan or income tax debt.

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