Although it can result in a credit hit, Chapter 13 bankruptcy is a powerful option for people who have regular income that can let them keep their property.
Chapter 13 bankruptcy allows you to use your existing income––or, if you are expecting a change in employment or income, your projected income–to pay your debts in monthly installments as part of a 3 to 5 year Chapter 13 Plan.
Eligibility Requirements for Chapter 13 Bankruptcy
In order to qualify for Chapter 13 bankruptcy protection, you need to meet certain requirements:
- Regular income (wages, Social Security, unemployment compensation, alimony/child support, or any other type of regular income, no matter the source); all required tax returns must be filed.
- Unsecured debts (credit cards, signature loans, medical bills, lawsuits, etc.) can’t total to more than $394,275, and secured debt (car notes, mortgages, tax liens, etc.) can’t total to more than $1,184,200.
- If you have received a discharge in a bankruptcy case filed within the previous 4 years
Contact Natural State Law to determine whether you are eligible for a Chapter 13 discharge, or to discuss your options and how filing a Chapter 13 bankruptcy might benefit you even if you are not yet eligible for a discharge.
How Chapter 13 Bankruptcy Repayment Works
Over your plan, you will pay back three basic categories of debt:
- Priority debt: tax obligations will generally be required to be paid in full; child support and alimony obligations will generally be required to be kept current.
- Secured debt: car notes, mortgages; by the end of the plan, for cars you intend to keep, you will have paid in enough to pay off those cars; if you were behind on your mortgage, you will have paid enough to catch up your mortgage and make the regular payment.
- Unsecured debt: credit cards, signature loans, medical bills, lawsuits; in many cases, most unsecured debt will be paid a pro-rata dividend (meaning only pennies on the dollar) and the balance of the debt will be discharged. Some types of unsecured debt are not dischargeable, such as student loans, or debt based on fraud, and those nondischargeable unsecured debts will receive a pro-rata dividend as well, and the balance of those debts will survive the Chapter 13 bankruptcy case.
Because Chapter 13 typically stretches out repayment over several years, this makes debt repayment more manageable. By committing to making your plan work, you can save important property like your home or automobile from foreclosure or repossession.
Keep in mind that this is only for individuals — businesses cannot file for Chapter 13. It’s also important to note that bankruptcy of any kind, especially one restructuring personal debt, can be complex. The case trustee will review every last detail of your personal finances. Having your household budget reviewed is part of the price that you pay to receive the benefit of the discharge of your unsecured debts.
Each person’s Chapter 13 plan will vary depending on his or her specific situation–-the type of debt, the property that is going to be paid for in the plan, and the person’s household income and expenses might all affect the amount of the plan payment. It’s important to speak with a qualified Little Rock bankruptcy attorney to explore the best options for you. Natural State Law can help – Call us at (501) 916-2878 to discuss how we can advise you through a potential Chapter 13 bankruptcy.