Filing bankruptcy is an excellent option if you’re looking for debt relief. Chapter 13 bankruptcy restructures debt and allows you to pay off most, if not all, debts. An attorney walks you through a court-supervised plan for 3 or 5 years.
In addition to debt relief, Chapter 13 also offers automatic stay while the bankruptcy case is open. This legal action prohibits creditors from contacting people who file for bankruptcy or engage in other debt collection activities.
You can experience significant peace of mind while getting your family’s financial life back on track.
Here is what you should know about how to file bankruptcy under Chapter 13.
Who is Eligible for Chapter 13 bankruptcy?
Not everyone can file for Chapter 13. It’s often called a wage earner’s bankruptcy because filers under this chapter earn consistent income but have trouble repaying a large amount of debt.
Chapter 13 also places a limit on how much debt you can have. Secured debts, such as a mortgage or car loan, must be less than $1,395,875 to be eligible. Similarly, your unsecured debts (medical bills, credit card debt, etc.) needs to be under $465,275.
Before filing Chapter 13, debtors also need to ensure all their tax returns are up to date. Our team recommends looking at the Chapter 7 requirements to see if it’s a better option for your situation.
Take a Credit Counseling Class
The first step in a Chapter 13 bankruptcy case is taking a credit counseling class. You can take this class online, over the phone, or in person. The credit counseling class explains what bankruptcy is and helps you explore alternative debt relief options.
Make sure the US Department of Justice approves your class to get credit. There are nearly 100 approved operators in Washington State, so you’ll have plenty of options to choose from.
The pre-filing credit counseling class should take about two hours to complete. Once you finish the class, the instructor presents a certificate of completion. You’ll need to submit the certificate to the bankruptcy court as part of your Chapter 13 filing.
Don’t wait too long before you take the class: Chapter 13 bankruptcy only gives 180 days to finish it.
Complete and File your Paperwork with the Bankruptcy Court
Completing your Chapter 13 paperwork can be time-consuming. Many people hire a bankruptcy lawyer to help them with the paperwork.
You’ll need to make a list of all your credits and debts. A free credit report helps with this step because it gives a list of all creditors. Also, tell the bankruptcy court about your income, expenses, family size, and any property you own.
After you finish your paperwork, you’ll need to pay $313 to file it with the local court.
Make a Plan
As part of filing your Chapter 13 bankruptcy, the court dictates a repayment plan. You’ll make a lump sum payment every month to the bankruptcy trustee during the 3 or 5-year plan. The trustee pays your creditors out of this sum.
The monthly payment amount depends on your income and what the bankruptcy considers to be reasonable expenses. These expenses depend on your family size and geographic location, food, housing, and health insurance bills.
For some expenses, you’ll include the actual amount you pay. For others, the federal government sets the number like with utilities.
Subtracting expenses from income equals your disposable income. For many people, their monthly payment is equivalent to their disposable income.
It’s important to put time and consideration into your debt management plan. The bankruptcy trustee reviews this plan and approves it or asks you to make changes to the plan.
Allocating your Monthly Payment
Your repayment plan tells the trustee the portion of each monthly payment that goes to which debt. There are a few types of debts you’ll have to consider when making your Chapter 13 repayment plan.
First, priority debts need to be paid in full. These include back taxes, child support, and alimony/spousal support.
Second, you’ll need to consider what to do with property secured by debts, including your house and car. If you want to keep this property, you’ll need to pay any defaulted amounts you owe.
You’ll also need to stay current on the loans during the repayment plan.
Finally, you’ll pay up to 100% of any unsecured loans you have. Unsecured loans include credit card debt, medical payments, and student loans.
At the end of your Chapter 13 plan, any unpaid amount for most of your unsecured, nonpriority debts, be discharged. This means that you won’t have to pay the remaining balance on them.
However, you’ll still be responsible for any unpaid student loan debt at the end of your Chapter 13 bankruptcy.
Many people either pay all of their debts over the course of their repayment plan or have very little outstanding debt to discharge at the conclusion of their Chapter 13 case.
Attend the Meeting of Creditors
Once you file your Chapter 13 paperwork, your bankruptcy trustee schedules a 341 meeting of creditors.
This meeting may be online as a COVID-19 precaution, or it may be at your local bankruptcy courthouse. Keep an eye on your mail for the notice of this meeting. Make sure you bring your ID when you attend the meeting.
At the meeting, the trustee confirms your identity and ask you some questions about your bankruptcy case. Your creditors receive a notice of the meeting from the bankruptcy court, but it’s rare for them to show up.
Before attending the meeting, it’s a good idea to review your Chapter 13 paperwork so you’re familiar with your case.
Make Monthly Payments
Once the bankruptcy trustee approves your repayment plan, you’ll be responsible for making monthly payments over the course of three or five years.
It can be frustrating to live frugally and have the majority of your income going towards debts. It’s important to keep up with your payments if you want to resolve your case on time.
Bankruptcy courts know that a lot of things can change while you are making your Chapter 13 payments. If you need to make changes to your plan, you can file a motion with the court to modify the plan.
You’ll need to explain why you want to make a change, but courts understand that life events happen, such as a job loss or need for car repair.
Take a Debtor Education Class
Before your bankruptcy case can be discharged, the bankruptcy code requires you to take a second class.
As with your first class, find a debtor education class approved by the Department of Justice. This class gives you tools to manage your finances moving forward.
You can complete the debtor education class in an afternoon, and you’ll receive another completion certificate. File this with the court to let the trustee know you’ve completed this step.
Receive your Bankruptcy Discharge
Finally, at the end of your bankruptcy plan, you’ll receive your bankruptcy discharge, the official end to your case.
While you should enjoy the end of your case, it’s important to make the most of your newfound financial freedom by spending money wisely. Practice good spending habits and rebuild your credit scores over time.
Hiring a Bankruptcy Attorney
Filing bankruptcy on your own isn’t the right answer for everyone. This is especially the case for people who file for Chapter 13 bankruptcy, which can be more complicated than filing Chapter 7.
A bankruptcy attorney will help you work through the process each step of the way. If you’re interested in speaking with an experienced bankruptcy lawyer, schedule a confidential consultation with us.
Call our Washington office at (509)-374-8996 today.