If you are facing what seems to be insurmountable debt or looking to make up arrears on your primary resident then you may be looking into what is Chapter 13 bankruptcy. Chapter 13 bankruptcy is a type of bankruptcy that allows consumers to repay their debts over a period of 3- 5 years. How much a debtor has to be paid back is going to be based on a debtors gross income, family size, if there are any taxes or child support owed and the value of any major assets above the exemption limits of what debtors are allowed to protect among the common factors.
For debtors who are below the Washington State median income for their family size and who don’t own any major assets, chapter 7 bankruptcy may be the way to handle your debts, but for everybody else, chapter 13 bankruptcy may be an option. In order to qualify for chapter 13 bankruptcy a debtor must be below the current chapter 13 debt limit, which as of October 2020 is $419,275 om unsecured debts such as credit cards and medical, and $1,257,850 of secured debts tied to property. If a consumer is over these debt limits they may have to consider chapter 11 bankruptcy, chapter 7 bankruptcy or debt settlement.
How Does Chapter 13 Bankruptcy Work?
If you decide that chapter 13 bankruptcy is the route to take, your first step is to reach out to a Seattle bankruptcy attorney to determine your eligibility and confirm that this is the right step for you to take. Your bankruptcy attorney will then send you intake information to complete and gather up which includes a questionnaire, last 6 months of paystubs, last 2 years of tax returns and you must complete a credit counseling class prior to filing your case. Once you answer any follow up question and provide all information you will review and sign your bankruptcy petition and that will be the date your case is filed most likely. Your bankruptcy plan payments will be based on the factors discussed above, but that might not be your final payment plan.
Once your case is filed, you will receive your case number and court date which will be in about 45 days from the date of filing your case. The bankruptcy court date is called the 341 meeting of creditors, however it is rare for any creditors to show up to ask you questions. Typically it will be only be an attorney from the chapter 13 trustee’s office asking you questions and your bankruptcy attorney will be present with you as well. After your court meeting, there may be some updates needed to your plan, but if you are current on your plan payments which are due on the 30th day after your case is filing and every 30 days thereafter and there are no objections to your plan, it will be confirmed by a bankruptcy judge and then you will receive your bankruptcy discharge order in 3-5 years from when you filed your case, unless your debt is paid off early. The timeframe is determined by your household gross income for the 6 months prior to filing your case. If you are below the median income for Washington State, you may file a 3 year repayment plan and if you are above the median income for Washington state, you must file a 5 year repayment plan. It also should be noted, that chapter 13 bankruptcy is only available to consumers, not businesses.
What are the Benefits and Detriments of Being in a Chapter 13 Plan?
Some of the benefits of being in a chapter 13 repayment plan are that it sill stop collections, garnishments and foreclosure sales immediately and allow you to make up any arrears over a 5 year repayment plan and for some debtors, they may end up paying very little to unsecured creditors throughout the duration of the chapter 13 plan. Additionally, upon completion of the chapter 13 plan, a debtors credit should be updated to reflect the discharge of debt and you will be eligible to purchase a home as soon as you come out of your chapter 13 plan.
Some of the detriments of filing chapter 13 are that you are restricted by the chapter 13 plan in that if you need to purchase a vehicle it requires chapter 13 trustee approval and any other major purchases would require court approval and cannot prejudice your creditors in any way or your request will likely be denied. Additionally you are required to commit all of your disposable income to the plan, so it may be difficult to have much in terms of savings while in the plan and you should keep in mind that the chapter 13 trustee does charge a fee which changes from time to time from about 5%-10% per month. This is a non factor if you are paying less than the full balance of your debts as you are paying less anyways, but if you pay 100% of your debt off through the plan it can increase your payments, but it may be still better than the high credit interest and debt that continues to accrue if you are only paying minimums.
Should I File for Chapter 13 Bankruptcy?
Whether you should file for chapter 13 bankruptcy, really depends on your situation as each debtors situation could be different. If you are an above median income debtor and you may have to pay back your debts 100%, you may want to consider debt settlement as an alternative if you have funds available in which to settle with your creditors for less than the full balance, but again this is a case by case determination.
Call Today For A Free Consultation With A Seattle Chapter 13 Bankruptcy Lawyer From Symmes Law Group!