What Actually Is Chapter 13 Bankruptcy?
One way to think about Chapter 13 is like debt reorganization. It is not the same thing as those companies out there that claim to consolidate your debts. Chapter 13 is more powerful than a debt consolidation, and it is helpful to think of it that way.
In Chapter 13, you take all of your creditors and secured creditors that you owe money to. Those are people that have loans that are backed by collateral, as in a mortgage or car loan, something that they could take back and sell it if you did not pay the loan amount. You take your secured debts and you are going to pay those back. You are going to restructure the debt between a 3 and a 5-year period and you are going to pay the debts back on those that you are behind on.
You are going to pay them, but you may be able to have a lower monthly payment and get out of some of the interests that are being accrued on those various debts. You also take a portion of your unsecured debts and you are going to have to payback a portion of those as well. Sometimes the portion is low and sometimes it is higher. That is case-dependant on what your situation may be.
At the end of the plan period, you pay a certain amount to the trustee who administers your case. You pay him a certain amount each month and you pay that for a period of possibly between three and five years. After that period is over, the remaining debts that you have that are unsecured will be discharged. Any credit card payments or any medical bills that are not backed by collateral will be discharged; you will be free of those debts.
After that, you should be caught up with your secured debts and you can continue to make regular payments on those secured debts. For example, if you’re $2,000 behind on your mortgage and you are $1,000 behind on your car and you have $10,000 in credit card debt, you would pay $3,000 back to the trustee over a period of three to five years for the secured debts between the car and the house.
A portion of the unsecured debts of that $10,000, let us say you pay $500 back, you take that $3,500, you split it up over the length of the plan, you make those payments for the trustee. At the end of that time period, you have caught up with your car and or house loan. That is how it works in best case scenarios.
What Requirements Must Be Met To File For Chapter 13 Bankruptcy?
For chapter 13, there are more stringent requirements than a chapter 7. First of all, you have to have a regular income. You have to demonstrate to the trustee and the bankruptcy court that you are going to be able to pay the trustee each month. You must be able to demonstrate some sort of regular income.
In addition to that, you can make any amount. If you are over the median income level, then you can still file a chapter 13, unlike chapter 7. If you are over that median income level for your state, then you have to be in the chapter 13 plan for five years. You can still file it, but you have to do it for longer amount of time.
The other requirements that you cannot have those limits on, are the amount of debt you can have. The limits are pretty high so they do not affect too many people. Every once in a while, if somebody has a large amount of debt, they may have too much to make it into a chapter 13. The debt limit detains according to inflation every year. Currently, for unsecured debt, you have to have less than approximately $380,000 of unsecured debt, whereas for a secured debt, you have to have over a million dollars. As long as you do not have an extremely large amount of debt, you should be in the clear.
If you need answers to Frequently Asked Questions about Chapter 13 Bankruptcy, call the Koehler Law Offices PLLC for a FREE 20 Minute Initial Consultation at (801) 441-2013 and get the information and legal answers you’re seeking.