Most people see money as the thing that makes the world go round. We can’t seem to survive without it. Money offers us the ability to buy things we want and need in life. But sometimes our eyes seem to be bigger than our pockets, and we find ourselves in a position where our debts are too large for our finances.
It can be easy to get ahead of ourselves when we begin making money, and we see what it has to offer. Though you may not be concerned about things like car insurance and bankruptcies, large purchases such as homes, expensive vehicles, and extracurricular activities can quickly place someone in more debt than they thought.
On the other hand, there may sometimes be unforeseen circumstances, such as expensive and unexpected medical bills, which cause us to fall into a place where our payments become too much.
So what should you do if you find yourself in a position where your bills have become overwhelming or too much to handle? Your answer may lie in filing for chapter 13 bankruptcy.
What is chapter 13 bankruptcy?
Chapter 13 bankruptcy is the answer for people who make a steady income but have gotten ahead of themselves in terms of bills. You have funds available, but the cost of your debts has gotten to a point where immediate payments are difficult to make.
When you file for chapter 13 bankruptcy, you are essentially creating a payment plan to repay the debts you owe. You will not lose your major assets when choosing this option. For example, if you are in the process of a foreclosure on your home, chapter 13 will stop the foreclosure process rather than the liquidation of your assets to pay off debt which happens in the case of chapter 7 bankruptcy.
How do I qualify for Chapter 13 bankruptcy?
There are a few requirements in order to be eligible for chapter 13 bankruptcy such as:
- Your tax filings must be up to date
- You must have a steady and regular income
- Your unsecured debt cannot exceed $394,725
- Your secured debt cannot exceed $1,184,200
- You cannot have filed for chapter 7 bankruptcy in the last four years
- You cannot have filed for chapter 13 bankruptcy in the last two years
- You cannot have filed a bankruptcy petition that was dismissed in the last 180 days
How do I apply for chapter 13 bankruptcy?
The first step you should take when considering bankruptcy is meeting with a bankruptcy attorney and credit counselor. A credit counselor will provide you with pre-bankruptcy counseling services as well as possible assistance when drafting your repayment plan.
Making an appointment with a bankruptcy attorney is a crucial step in the process. Filing for bankruptcy is no easy task. Without the assistance of an attorney, you may fill something out incorrectly or even miss a step in the process, which can cause your case to simply be thrown out.
Both meetings will allow you to understand your situation and decide if bankruptcy is truly the best option for you.
After you have determined bankruptcy is the right choice, you will file a petition with the bankruptcy court serving your area. You will need to provide information when filing such as:
- The sources and amounts of your income
- A list of creditors and what they are owed
- A breakdown of your monthly living expenses
- A list of property in your name
- Your most recent tax information
After you have filed, you will need to propose a repayment plan. The plan must be submitted within 14 days of your filing.
Once this happens, you will have a hearing with a bankruptcy judge or administrator who will determine if your repayment plan meets requirements and is fair. They will have the final say in your payment plan.
What happens after I file?
Typically, most payment plans made under chapter 13 bankruptcy will extend over a period of 3 to 5 years. After you have filed your petition, you are expected to begin making your payments within 30 days.
An important point to keep in mind for this part of the process — your 30 days to begin making payments starts from your filing date, despite whether your petition has been approved or not.
Your payments will be made to a chapter 13 trustee, who will then distribute them to the appropriate creditors to ensure your debts are being paid down. Some trustees may require your payments to be made through a payroll deduction, which means a form will be sent to your employer so the appropriate funds can be redirected for payments.
You will have no contact with your creditors under chapter 13 protection.
While you are making your payments through the course of your agreed upon period you will also be expected to take a debtor education course, which is typically provided by a non-profit counseling company. The counseling must begin within 180 days after the petition has been filed.
If you fail to make your payments or do not have the funds, this will cause your case to fall back under review. If this happens, the result could be selling off your property in order to pay debts.
Bankruptcy is not a Life Sentence
Sometimes there is a lot of fear and embarrassment that surrounds the idea of filing for bankruptcy. Though it is understandable to have strong negative feelings about the process, sometimes it is the best choice to make depending on your circumstances.
Once you have completed your agreed upon payment plan period and met your requirements, your remaining dischargeable debt will be wiped out, leaving you back in a place where you are comfortable financially.
The bankruptcy will stay on your credit report for a total of seven years, after which it will be wiped clean and you are able to start over.
Don’t look at bankruptcy as a life sentence. Sometimes it is a necessary process given our circumstances. Chapter 13 gives you an opportunity to keep your assets and pay down your debt, leaving you in a much better place after you have finished your payments.
Alexandra Arcand writes and researches about the laws regarding insurance for the car insurance comparison site, CarInsuranceComparison.com. She enjoys guiding people to the financial help they need.