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What Does the Law Say About Chapter 13 Bankruptcy?
If you’re overwhelmed by debt and creditors won’t give you peace, you may have legal recourse in filing for bankruptcy. The law provides two bankruptcy options to protect debtors from losing everything they own to creditors as they work on repaying their debts. Chapter 13 is an option available to debtors with a regular income.
Also known as a wage earner’s plan, Chapter 13 bankruptcy enables a debtor to develop a plan to repay what they owe over three to five years while retaining their property. However, Chattanooga bankruptcy lawyers say there are eligibility requirements for individuals who want to file Chapter 13 bankruptcy.
What is the Eligibility for Chapter 13 Bankruptcy?
You must meet specific eligibility requirements to file for Chapter 13 bankruptcy. If approved, you can consolidate and repay most of your debts in reasonable installments in three to five years. Any pending debts will be discharged at the end of that period.
Skilled Chapter 13 bankruptcy attorneys in Chattanooga can evaluate your eligibility and help you file your petition.
Type of Debt and Limits
Whether you’re eligible to file for Chapter 13 bankruptcy depends on the type of debt you owe, as not all debts are dischargeable under this category. For example, student loans are not dischargeable under most circumstances unless you can prove undue hardship caused by repaying the debt.
Some debts for which you can file Chapter 13 bankruptcy include the following:
- Utility bills
- Personal loans
- Medical bills
- Credit card debt
- Non-priority income tax obligations
- Most lawsuit judgments
Additionally, there are debts you can discharge under Chapter 13 bankruptcy but not Chapter 7. Examples include the following:
- Willful and malicious property damage
- Debts you incurred to pay non-dischargeable taxes
- Certain debts associated with divorce or separation property settlements
- Post-petition homeowners’ dues
- Government penalties, fines, and forfeitures
- Unsuccessful bankruptcy case debt
- Crammed-down or stripped liens
- Debts arising from violations of laws on securities
Nonetheless, you will likely pay a substantial portion of these debts through the Chapter 13 plan. The court will only discharge the remaining portion at the end of the period assigned. Your debt limits must not exceed $1,257,850 for secured debts and $419,275 for unsecured debt.
Income Requirements
Chattanooga Chapter 13 bankruptcy lawyers say that to qualify for this debt repayment plan, you must have a regular income source to fund the repayments. Your income sources can be:
Wages
Salary
Income from a retirement plan or trust
Self-employment income
Rental income
Dividends from a stock portfolio
Other sources of regular income
Once the court verifies that you have a regular source of income, you must make the repayment plan work by making regular payments to the trustee. You can submit the amounts through payroll reduction, ensuring you make timely payments. However, the arrangement may require you to adjust to live on a fixed budget for an extended period.
While the plan entitles you to retain your property as long as you make payments, you may not incur new dent without consulting your trustee. That’s because new debt could compromise your ability to honor the repayment plan. A violation of the plan could make the court dismiss the case or convert it to a liquidation case under Chapter 7 of the Bankruptcy Code.
Financial Management Course
Your Chattanooga Chapter 13 bankruptcy lawyers will tell you that you must complete a court-approved credit counseling course before filing for bankruptcy. Additionally, you must enroll in a financial management course after filing to educate yourself about budgeting, money management, and sound financial behavior.
Previous Bankruptcies
If you had previously filed for bankruptcy in the past and your debts were discharged, there are limitations on when you can submit another request. For Chapter 13, you must wait at least two years from the previous discharge date. You must wait 4 years from the last Chapter 7 discharge date.
Additionally, if you had attempted to file for bankruptcy but your case was dismissed, you must wait 180 days before you can refile. You also must complete the mandatory credit counseling sessions within 180 days after filing your petition.
Which Debts Can’t Be Canceled in Chapter 13 Bankruptcy
Regardless of your income and assets, there are debts that you must pay off entirely, even after filing for Chapter 13 bankruptcy. Bankruptcy attorneys in Chattanooga highlight some of them:
- Priority debts, such as child and spousal support obligations and certain tax debts
- Mortgage arrears if you plan to keep your home
- Car loans and other secured debts
- Administrative claims, such as trustee fees, which is up to 10% of your plan payment
What Happens After Filing Chapter 13 Bankruptcy?
Once you file for bankruptcy, those you owe will stop bothering you, but it may take a few days before the court mails them a notice of the “automatic stay.” You’ll then hand in financial documents proving the statements in your bankruptcy paperwork and attend a meeting of creditors.
You can discharge the remaining eligible debts if you’re successful with your Chapter 13 debt repayment plan. This gives you a fresh start to improve your financial stability and credit scores over time.
An Experienced Bankruptcy Lawyer Helping You Navigate Chapter 13 Bankruptcy Eligibility Criteria
Being in debt can be strenuous, and it can be even more overwhelming if you have to file for bankruptcy to stop creditors from harassing you. Before you can file, there are many requirements you must meet, especially concerning your income, as explained above. Skilled Chapter 13 bankruptcy lawyers in Chattanooga can evaluate your eligibility.
At The Tom Bible Law firm, we have dedicated lawyers ready to help you rebuild your financial standing within the legal framework. While the move can hurt your credit score, it gives you a chance to get a clean start without dealing with the persistence of creditors daily. Call us at 423-874-6628 to schedule a consultation.
