When faced with overwhelming debt, it’s important to know that options are available to help you regain financial stability. While Chapter 7 bankruptcy may be the first choice for many, only some qualify for this form of debt relief. In such cases, Chapter 13 bankruptcy can provide a viable solution.
One of the most common types of bankruptcy, Chapter 13, is also known as the wage earner’s plan. It’s designed for people who have a regular income and want to keep their property while paying back some or all of their debts over time.
This process is distinct from Chapter 7 bankruptcy, which involves liquidating assets to repay debts. Under Chapter 13, you can often keep your property and set up a repayment plan over three to five years.
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is a form of reorganization that allows you to propose a repayment plan to your creditors. The plan usually lasts three to five years, depending on your income and the amount of debt you owe. During this period, you make monthly payments to a trustee, who distributes them to your creditors according to the plan’s terms.
The main benefit of Chapter 13 bankruptcy is that it can help you save your home from foreclosure, your car from repossession, and your other assets from liquidation. Unlike Chapter 7 bankruptcy, which requires you to sell your non-exempt property to pay off your debts, Chapter 13 bankruptcy lets you keep your property as long as you make the plan payments and stay current on your secured debts.
Another benefit of Chapter 13 bankruptcy is that it can reduce or eliminate some of your unsecured debts, such as credit cards, medical bills, personal loans, and tax debts. Depending on your income and expenses, you may only have to pay a fraction of what you owe to these creditors. In some cases, you may not have to pay them anything at all.
While Chapter 13 bankruptcy can help you keep your assets, it does not mean they are completely safe from creditors. You need to take some steps to protect your assets.
- Know What’s Exempt
While Chapter 13 bankruptcy allows for more asset retention than Chapter 7, it’s still important to know which of your assets are exempt from being taken by creditors. This often includes primary residences, vehicles used for transportation, tools of your trade, and basic household goods. Knowing the exemption rules in your state is critical in your strategy to protect your assets.
- Consider Converting from Chapter 7 to Chapter 13
If you’ve initially filed for Chapter 7 bankruptcy but have considerable non-exempt property you’d like to keep, you can convert your case to a Chapter 13 bankruptcy. Consult with a bankruptcy attorney to discuss whether this is a viable option.
- Regular Income and Repayment Plan
Having a regular income is a prerequisite for Chapter 13 bankruptcy. You’ll need to create a feasible repayment plan outlining how to pay off your debts. Crafting a sustainable plan not only demonstrates to the court your commitment to addressing your debt but also allows you to retain your assets while making payments.
- Catch Up on Secured Debts
Chapter 13 allows you to make up for missed payments on secured debts, such as mortgages and car loans, over time while retaining the collateral. If you need to catch up on these payments, the Chapter 13 repayment plan can provide the structure and timeframe to catch up.
- Engage a Bankruptcy Lawyer
This may seem like an added expense, but engaging a competent bankruptcy lawyer can be a game-changer in your quest to protect your assets. Bankruptcy laws can be complex, and having someone experienced can ensure you make informed decisions and utilize all available protections.
Qualifying for Chapter 13 Bankruptcy
To be eligible for Chapter 13 bankruptcy, certain requirements must be met. These include having a stable income, unsecured debts below $394,725, and secured debts below $1,184,200. Unsecured debts include credit card debt and medical bills, while secured debts are typically associated with mortgages and car loans. Additionally, individuals must not have had a recent bankruptcy case dismissed within the past 180 days and must have attended credit counseling within the same timeframe.
The Chapter 13 Repayment Plan
One of the key aspects of Chapter 13 bankruptcy is creating a repayment plan. This plan outlines how much individuals will pay their creditors throughout the bankruptcy period. The court reviews and approves the plan, which must be feasible, proposed in good faith, and compliant with bankruptcy laws. The plan typically involves paying priority debts, such as taxes and child support, while unsecured debts may be reduced or forgiven once the repayment plan is completed.
Protecting Your Assets in Chapter 13 Bankruptcy
One of the major advantages of Chapter 13 bankruptcy is the ability to protect valuable assets from repossession or foreclosure. By adhering to the repayment plan and making regular payments, individuals can prevent the loss of their home, car, and other important assets. It’s crucial to work closely with an experienced bankruptcy attorney who can help navigate the complexities of Chapter 13 and ensure that your assets are adequately protected.
Homestead Exemption
The homestead exemption is one way to protect your home in Chapter 13 bankruptcy. This exemption allows individuals to retain a certain amount of equity in their primary residence. The amount varies depending on state laws, and it’s important to consult with your bankruptcy attorney to determine the specific exemption limits in your jurisdiction.
Vehicle Exemption
Similar to the homestead exemption, individuals filing for Chapter 13 bankruptcy can also protect their vehicles through the vehicle exemption. This exemption allows you to retain a certain amount of equity in your car or other vehicles. Again, the exemption limits vary by state, so it’s essential to consult with your attorney to understand the regulations in your jurisdiction.
Wildcard Exemption
If your assets exceed the limits of the homestead and vehicle exemptions, you may be able to utilize a wildcard exemption to protect additional assets. The wildcard exemption allows individuals to protect any property they choose, regardless of its specific category. This can be particularly useful when safeguarding assets not covered by other exemptions.
Keeping Personal Belongings
In Chapter 13 bankruptcy, individuals can also protect personal belongings, such as clothing, furniture, and other household items. These items are typically considered exempt and will not be used to repay creditors. However, it’s important to note that certain valuable assets, such as expensive jewelry or collectibles, may be subject to specific limitations or require additional documentation to qualify for exemption.
The Chapter 13 Bankruptcy Process
Now that we have covered the basics of Chapter 13 bankruptcy and asset protection let’s delve into the step-by-step process of filing for Chapter 13 bankruptcy.
Step 1: Consultation with an Experienced Attorney
The first step in the Chapter 13 bankruptcy process is to schedule a consultation with an experienced bankruptcy attorney. During this initial meeting, your attorney will assess your financial situation, evaluate your eligibility for Chapter 13 bankruptcy, and discuss the benefits and risks of this form of debt relief.
Step 2: Credit Counseling Course
Before filing for Chapter 13 bankruptcy, you must complete a credit counseling course from an agency approved by the Department of Justice U.S. Trustee Program. This course helps determine if you have sufficient income to repay your creditors and provides valuable financial education to help you make informed decisions throughout the bankruptcy process.
Step 3: Prepare and File Bankruptcy Petition
Once you have completed the credit counseling course, your attorney will assist you in preparing and filing the necessary bankruptcy petition and supporting documents. These documents include a detailed list of your assets, liabilities, income, expenses, and a proposed repayment plan.
Step 4: Automatic Stay and Meeting of Creditors
Upon filing for Chapter 13 bankruptcy, an automatic stay goes into effect. This stay prohibits creditors from taking further collection actions against you, providing immediate relief from creditor harassment, wage garnishment, and foreclosure proceedings. Shortly after filing, you will be required to attend a meeting of creditors, also known as a 341 meeting. This meeting allows creditors to ask questions regarding your financial situation and proposed repayment plan.
Step 5: Confirmation Hearing
After the meeting of creditors, a confirmation hearing will be scheduled. During this hearing, the bankruptcy court will review your proposed repayment plan and determine its feasibility and compliance with bankruptcy laws. Creditors can object to the plan, but with the guidance of your attorney, you can address any concerns and work towards a plan that is acceptable to both you and your creditors.
Step 6: Repayment Plan
Once the court confirms your Chapter 13 repayment plan, you will begin making monthly payments according to the terms outlined in the plan. These payments are made to the bankruptcy trustee, who will distribute the funds to your creditors. It’s crucial to make these payments in a timely manner to ensure the success of your Chapter 13 bankruptcy and the protection of your assets.
Step 7: Debtor Education Course and Discharge
Before obtaining a discharge at the end of your Chapter 13 repayment plan, you must complete a debtor education course from an approved agency. This course provides valuable financial management education to help you maintain a stable financial future. Once you have completed the course and fulfilled all other repayment plan requirements, the court will grant you a discharge, releasing you from the remaining dischargeable debts.
Bankruptcy can be a daunting, emotionally taxing process, but it’s not an insurmountable challenge. It’s a legally sanctioned method to regain control over your financial situation, and with a sound strategy, you can protect your assets and embark on the path toward financial recovery. As you navigate these rough financial waters, remember that you are not alone, and help is available. With knowledge, strategy, and the right support, you can weather the storm and emerge stronger on the other side.
Remember, each case is unique, and it’s essential to consult with an attorney to assess your specific situation and determine the best course of action for protecting your assets in Chapter 13 bankruptcy. With the right guidance and a commitment to making regular payments, you can achieve a fresh financial start and secure a brighter future.
At David Brunelle Law Office, we understand how stressful and overwhelming it can be to deal with debt problems and we are here to help you find a solution that works for you. Contact us today for a consultation, and let us help you protect your assets in Chapter 13 bankruptcy.