The Truth Behind Filing For Chapter 13 Bankruptcy

When debt becomes overwhelming, other options such as bankruptcy can be sought to help resolve the debt. Bankruptcy is certainly not the first option that should be considered to clear high debt amounts; but it’s also important to understand what bankruptcy is, how it can help, and what you can expect once you file.

There are several different types of bankruptcy, Chapter 13 being one of the most common. In this article, we’ll discuss what happens when you file Chapter 13 bankruptcy.

What is Chapter 13 Bankruptcy?

With Chapter 13, sometimes called the “Wage Earners Income” debt isn’t all forgiven, but will instead be restructured so that those who have an income have an opportunity to repay. This can be a good option for borrowers who can still make payments on their debt, but who are struggling to pay in the fashion their creditors are demanding.

Many of those who file for bankruptcy prefer Chapter 13 because it allows them to retain their property while settling their debts. With other filings, you’ll often have to give up your home, car, and other property during the process so that they can be liquified in order to repay debt.

How Does Chapter 13 Work?

When you choose to file Chapter 13, you’ll submit a plan that reorganizes your debt repayment in order to repay some debt, forgive some debt, and protect your assets. The types of debt that can be forgiven in Chapter 13 mostly includes credit card debt and personal loans; Alimony payments, taxes, child support, and student loans are not dischargeable in bankruptcy filings.

There are limitations as to how much debt you can carry when you choose to file:

You cannot have more than $394,725 in unsecured debt, such as personal loans and credit card debt.
You cannot have more than $1,184,200 in secured debt, such as auto loans and home mortgages.

When you file for Chapter 13, it allows you to restructure your loan repayments so that you can (hopefully) afford to keep your secured debt. Often, filing for Chapter 13 will allow you to stop foreclosure proceedings.

What Process Can You Expect to Go Through When You File?

With any type of bankruptcy filing, your first step should always be to secure a bankruptcy lawyer. You can expect to pay fees to the attorney you hire, as well as a filing fee to the bankruptcy court and other administrative fees.

When you begin the process of filing, you can expect to need the following information:

A list of your monthly living expenses and budgets
Information on all creditors and how much you owe
Income information
Information on all property you own
Tax returns

You can expect to be required to undergo credit counseling prior to your Chapter 13 filing. Once that is completed, you’ll then need to work with your bankruptcy attorney to devise a repayment plan. When submitted, the judge overseeing your filing will determine if your plan is sufficient enough to repay debts and also determine if they feel the plan is realistic according to your circumstances and financial situation.

Once your plan has been approved, all payments will be made under your Chapter 13 rules set forth and must be made on time. You must notify the court of any change in your situation that does not allow you to repay your debts and seek a modification in your plan. Your Chapter 13 runs the risk of being canceled if you do not meet the plan stipulations.

What Can You Expect After Filing Chapter 13?

After you go through Chapter 13 proceedings and your plan is approved, it’s time to focus on repaying your debt under the new structure. Unfortunately, the bankruptcy will be listed on your credit history for up to 7 years; however, during and after the 7 years, you have the opportunity to rebuild your credit by satisfying your debt and making your payments on time. You can expect to have some trouble securing new loans initially, but after you complete your bankruptcy plan (typically 3-5 years) and you show responsibility over time, your credit score and history will improve.

What Are Other Options to Consider Besides Bankruptcy?

Bankruptcy is certainly a viable option to assist you with debt you can no longer afford, however, there are other options you should consider before filing, such as: