Chapter 13 bankruptcy, also known as a wage earner’s plan, is a type of bankruptcy designed for individuals with regular income who are struggling to meet their financial obligations. Under this plan, filers propose a repayment plan to their creditors, outlining how they will repay some or all of their outstanding debts over three to five years. Chapter 13 bankruptcy can offer a fresh start to individuals who are willing to take responsibility for their debts and work toward financial stability over time.
If you’re considering filing for Chapter 13 bankruptcy and need debt relief, getting the help of an experienced New Jersey bankruptcy attorney is essential. While filing for bankruptcy can help prevent debt collection actions, consolidate your debt, and establish a manageable repayment plan, it can also have a long-standing impact on your financial prospects such as previous bankruptcies appearing on background checks.
Working with an experienced attorney can help you learn more about your options and get the legal support you need to navigate the bankruptcy process. At Straffi and Straffi Attorneys at Law, our team of skilled New Jersey bankruptcy attorneys can evaluate your financial situation and help you understand your available options. We can also help you make informed decisions and assist you in the process of filing. Contact us today at (732) 341-3800 to schedule a consultation.
Basics of Chapter 13 Bankruptcy
Aside from providing filers a way to reorganize their debt through the creation of a repayment plan, one of the other primary benefits of Chapter 13 bankruptcy includes the ability to prevent foreclosure on a home and car repossession. By filing for Chapter 13 bankruptcy, a filer’s debts are consolidated, and a repayment plan is established that allows the debtor to address past due amounts while also making current payments. Additionally, during the Chapter 13 bankruptcy plan, creditors are legally prohibited from pursuing collection actions against the debtor, providing relief from harassing phone calls and legal actions.
It’s important to note that not all debts can be discharged through Chapter 13 bankruptcy. Some non-dischargeable debts include child support, alimony, student loans, and certain taxes. However, filers may be able to restructure these debts and establish a reasonable repayment schedule under a Chapter 13 plan, making them more manageable in the long run.
Eligibility Criteria for Chapter 13 Bankruptcy
To qualify for Chapter 13 bankruptcy, an individual must meet specific eligibility criteria, including:
- Regular income: Filers must have a consistent source of income, demonstrating their ability to make regular payments on a debt repayment plan. Eligible income sources may include salary, wage, self-employment income, Social Security benefits, and rental or investment income.
- Debt limit restrictions: At the time of filing, an individual’s secured and unsecured debts must be below certain limits. These limits are adjusted periodically to account for inflation. As of 2021, a filer’s secured debts must not exceed $1,257,850, and unsecured debts must not exceed $419,275.
- No recent bankruptcy discharge: An individual cannot file for Chapter 13 bankruptcy if they have received a bankruptcy discharge in a Chapter 7 case within the past four years or in a previous Chapter 13 case within the past two years.
- Completed credit counseling: Filers must complete an approved credit counseling course within 180 days before filing for Chapter 13 bankruptcy.
Comparison with Other Types of Bankruptcies
There are two primary forms of individual bankruptcy: Chapter 7 and Chapter 13. Chapter 7 is a liquidation bankruptcy, in which a court-appointed trustee sells non-exempt assets to pay off creditors. In contrast, Chapter 13 allows the debtor to keep their assets and reorganize their debts into a manageable repayment plan.
Chapter 13 bankruptcy may be a better option than Chapter 7 for individuals who have a steady income and can afford to repay some of their debts over time. It also offers advantages for those who wish to keep their homes or other valuable assets, as well as for those with non-dischargeable debts that can be restructured and repaid over time.
The Process of Filing for Chapter 13 Bankruptcy
Filing for Chapter 13 bankruptcy involves several steps, including:
- Credit counseling: Complete a court-approved credit counseling course within 180 days of filing.
- Prepare the petition: Collect all required financial information and documents, including a list of debts, assets, income sources, and living expenses. A bankruptcy attorney can assist in accurately preparing the required documents.
- File the petition: Submit the completed petition and any required fees to the bankruptcy court that serves your geographic area.
- Attend the 341 meeting: Approximately a month after filing, a meeting with the appointed bankruptcy trustee and your creditors, known as the 341 meeting, will be held. The debtor must answer questions about their financial circumstances under oath.
- Propose a repayment plan: The debtor will develop a proposed repayment plan, outlining how much they will pay to their creditors over the three-to-five-year period. The plan will be reviewed by the bankruptcy trustee and may be modified before being submitted to the court for approval.
- Confirmation hearing: A judge will review and, if approved, confirm the repayment plan during a confirmation hearing. Once approved, the debtor will begin making monthly payments to the trustee, who will distribute the payments to creditors.
- Complete a debtor education course: Before receiving a discharge in Chapter 13, the debtor must take a court-approved debtor education course.
- Discharge of remaining eligible debts: Once the repayment plan is completed, the debtor will receive a discharge of any remaining eligible debts not paid off within the plan.
Overall, Chapter 13 bankruptcy offers an opportunity for those struggling with debt to create a manageable repayment plan, protect valuable assets, and work toward a more stable financial future. It’s essential to consult with an experienced bankruptcy attorney who can guide you through this complex process and help determine if Chapter 13 bankruptcy is the right solution for your unique situation.
|Steps in Filing for Chapter 13 Bankruptcy||Course of Action|
|Credit counseling||Complete a court-approved credit counseling course within 180 days of filing.|
|Prepare the petition||Collect required financial information and documents for debts, assets, income, expenses.|
|File the petition||Submit completed petition and fees to the bankruptcy court.|
|Attend the 341 meeting||Attend a meeting with trustee and creditors to answer financial questions under oath.|
|Propose a repayment plan||Develop a repayment plan for creditors, reviewed by trustee and submitted for approval.|
|Confirmation hearing||Review and approval of repayment plan by a judge; monthly payments to trustee commence.|
|Complete a debtor education course||Take a court-approved debtor education course before discharge.|
|Discharge of remaining eligible debts||Receive discharge for eligible debts not paid off within the repayment plan.|
Chapter 13 Bankruptcy Repayment Plan
A Chapter 13 bankruptcy repayment plan is a legally-binding agreement created between you, your creditors, and a bankruptcy trustee. It outlines how your debts will be restructured, allowing you to repay them within a specified time frame – typically three to five years. Chapter 13 bankruptcy is most suitable for individuals with a stable income who can afford to make regular monthly payments. In this article, we explore the process of creating a repayment plan, the length and terms involved, and the requirements for meeting with creditors and the trustee.
Creating a Chapter 13 Repayment Plan
Creating a Chapter 13 repayment plan is the first step in filing for this type of bankruptcy. It is essential to consult with an experienced bankruptcy attorney to help you create a feasible plan that will be accepted by the court.
The repayment plan outlines all the details regarding your monthly payments, including the amount to be paid, which debts will be prioritized, and how long the plan will last. It aims to ensure that all of your disposable income goes towards repaying your debts.
To create the plan, you must first gather all necessary financial documentation such as income statements, bank account statements, tax returns, expense records, and the balances owed to each creditor. This information will be used to calculate your monthly disposable income, the amount you have left to pay towards your debts after deducting your necessary living expenses.
With the help of your attorney, you will then create a proposed plan demonstrating your ability to make the required payments. The court and your creditors will review your plan and may decide to either approve it or request amendments before accepting it.
Length and Terms of the Repayment Plan
The length of a Chapter 13 repayment plan depends on your income level and the amount of debt you owe. Generally, the plans last either three or five years, determined by the court and dependent on your situation.
The terms of the plan establish the order in which your debts will be repaid. Priority debts, such as child support or taxes, must be paid off first, followed by secured debts like mortgages or automobile loans, and finally unsecured debts, including credit card bills and medical expenses.
While most unsecured debts can be discharged at the end of your repayment plan if your disposable income can’t cover the full payment, secured debts, and priority debts must be paid in full. Your plan may also include provisions for repaying any co-signed debts.
Meeting with Creditors and Trustee
After filing your petition and submitting your repayment plan, a meeting with your creditors and trustee, also known as a 341 meeting or the meeting of creditors, will be scheduled. This meeting allows the trustee and creditors to review and discuss your plan, ask any questions or raise any concerns.
During this meeting, the trustee will verify your identity and may ask you about your financial situation, assets, and liabilities. It is crucial to answer all questions honestly and provide all the necessary documentation to support your repayment plan.
If there are any objections to your plan, you may need to negotiate with your creditors to find a resolution. Your attorney will guide you through this process and help you make any necessary changes to your plan.
Making Payments and Plan Modifications
Once your repayment plan is approved, you must start making the required monthly payments to your bankruptcy trustee, who will then distribute these funds to your creditors. It’s essential to make these payments on time to avoid dismissal of your bankruptcy case.
If you experience significant changes in your financial situation during the repayment plan, such as job loss or increased expenses due to medical issues, you may request a modification to your plan. To do so, you must submit a written motion outlining the proposed modifications and the reasons behind them. The court will review your request, and your creditors will have the opportunity to object.
If the court grants your modification request, you must continue making the adjusted payments as ordered. In contrast, if it’s denied, you must either continue on the original plan or potentially convert your case to another bankruptcy chapter.
Once you have completed all the required payments under your approved Chapter 13 repayment plan, the court will discharge any remaining eligible debts, signifying the end of your bankruptcy case.
Discharge of Debts in Chapter 13 Bankruptcy
Chapter 13 bankruptcy, also known as a wage earner’s plan, allows individuals with regular income to develop a plan to repay all or part of their debts over three to five years. Discharge in Chapter 13 bankruptcy means that the debtor is legally freed from the responsibility of repaying certain types of debts.
Types of Debts Discharged in Chapter 13 Bankruptcy
In a Chapter 13 bankruptcy, a variety of debts can be discharged, meaning they are no longer legally enforceable against the debtor. Some common types of debts that can be discharged include:
- Unsecured debts, such as credit card balances, personal loans, and medical bills
- Older tax liabilities that meet specific requirements
- Secured debts that are paid through the Chapter 13 plan and the debtor no longer wishes to keep the collateral (such as a car or house)
- Some types of non-dischargeable debts in Chapter 7 – can include marital debts incurred in divorce or separation, as well as some debts for willful and malicious injury
- Debts that were non-dischargeable in a previous bankruptcy case under specific circumstances.
It is important to note that the dischargeable debts may vary depending on individual cases and circumstances.
Conditions to Receive a Discharge
To be eligible for a discharge in a Chapter 13 bankruptcy case, the debtor must meet specific conditions. These include:
- Completion of all payments under the Chapter 13 plan, including both secured and unsecured debts.
- Certification that all domestic support obligations, such as alimony or child support, are up-to-date and paid in full.
- Completion of a personal financial management course approved by the bankruptcy court.
- Submission of a certification that there are no outstanding orders for restitution or similar criminal penalties.
- No prior discharge has been granted in another bankruptcy case within specific time frames: two years for a previous Chapter 13 case and four years for a Chapter 7, 11, or 12 case.
Special Circumstances Leading to Discharge
In some special circumstances, the bankruptcy court may grant a Chapter 13 hardship discharge if a debtor is unable to complete the plan payments due to circumstances beyond their control. These circumstances may include:
- Sudden illness or injury that prevents the debtor from maintaining his or her usual employment
- Unforeseen expenses or decreased income due to no fault of the debtor
- Modification of the Chapter 13 plan would not be feasible or in the best interests of the debtor and creditors
To qualify for a hardship discharge, the debtor must show that the creditors have received at least as much as they would have received in a Chapter 7 bankruptcy case, and modification of the Chapter 13 plan is not possible.
Debts Not Discharged in Chapter 13 Bankruptcy
Some debts are not dischargeable in Chapter 13 bankruptcy and remain the legal responsibility of the debtor. These debts may include:
- Recent taxes and tax liabilities, including federal, state, and local taxes
- Debts incurred through fraud or false pretenses
- Debts resulting from fraud, embezzlement, larceny, or breach of fiduciary duty
- Outstanding student loans, unless undue hardship can be proven
- Debts for willful and malicious injury to another person or property
- Debts arising from death or personal injury caused by the debtor’s operation of a motor vehicle, vessel, or aircraft while intoxicated
- Debts for restitution or damages awarded in a civil action for willful or malicious actions by the debtor that caused personal injury or death
- Domestic support obligations, including alimony, child support, and certain settlements in divorce or separation agreements
- Certain types of fines, penalties, and forfeitures owed to governmental entities
- Debts not provided for or reaffirmation agreements made during the bankruptcy case.
Understanding which debts can be discharged in a Chapter 13 bankruptcy, as well as the conditions and special circumstances affecting discharge, is essential for individuals considering bankruptcy as a means to resolve their financial issues. It is recommended to consult an experienced bankruptcy attorney to fully understand the implications and ramifications of filing for Chapter 13 bankruptcy.
Completion of Chapter 13 Bankruptcy Repayment Plan
Chapter 13 bankruptcy is a powerful tool that allows individuals to restructure their debts and repay them over a period of 3 to 5 years under the protection of the bankruptcy court. The completion of a Chapter 13 repayment plan is a significant milestone for debtors, as it means they have successfully made all required payments and can now seek discharge from their remaining eligible debts.
Finalizing Payments and Requesting Discharge
As a debtor nears the end of their repayment plan, it is essential to ensure all required payments have been made and all necessary documents have been filed with the court. This typically involves the following steps:
- Confirming that all payments have been made according to the repayment plan: The debtor should review their records and consult with their bankruptcy attorney to verify that all required payments have been made on time and in the appropriate amounts.
- Completing required financial education courses: Most jurisdictions require debtors in a Chapter 13 to complete a financial management course before receiving a bankruptcy discharge. Debtors must submit a certificate of completion to the court to verify they have met this requirement.
- Filing required certifications: The debtor must file a Certification Regarding Domestic Support Obligations and Certification of Section 522(q) Exemption (if applicable) with the bankruptcy court. These certifications attest that the debtor is current on any domestic support obligations and has not received a previous discharge in another chapter of bankruptcy that would make them ineligible for discharge in the current case.
- Requesting a discharge: Once all required payments have been made, certifications have been filed, and the financial management course has been completed, the debtor or their counsel will file a motion for entry of discharge with the bankruptcy court. This request should include documentation to prove completion of all requirements.
Entry of Discharge Order by the Bankruptcy Court
Once the debtor has successfully completed their repayment plan, filed all required certifications, and requested a discharge, the bankruptcy court will review the case to ensure all requirements have been met. If the court is satisfied that the debtor has met all necessary criteria, it will enter an order of discharge. The discharge order legally eliminates the debtor’s responsibility to pay any remaining outstanding balances on dischargeable debts.
Upon entry of the discharge order, the court will typically close the debtor’s bankruptcy case, thereby ending the bankruptcy process. Creditors whose debts have been discharged in the bankruptcy will no longer be able to pursue any collection actions against the debtor. Debtors need to keep a copy of their discharge order and case closing documents for future reference and proof of their bankruptcy discharge.
Handling Non-Discharged Debts Post-Discharge
Although a Chapter 13 bankruptcy discharge eliminates the debtor’s responsibility for most of their outstanding debts, there are certain types of debts that are not discharged, and the debtor will remain obligated to pay post-discharge. Debtors should develop a plan to continue paying non-dischargeable debts even after their bankruptcy discharge. Collaborating with an experienced bankruptcy attorney throughout the bankruptcy process and after the completion of the repayment plan is vital to ensure successful financial recovery and future stability.
Impact of Chapter 13 Bankruptcy Discharge on Credit and Finances
Bankruptcy can offer much-needed relief for individuals and families struggling with unmanageable debt. However, the decision to file for bankruptcy should not be taken lightly, as it can have significant long-term effects on a person’s credit and overall financial health, particularly in the case of Chapter 13 bankruptcy. In this article, we will discuss the impact of a Chapter 13 bankruptcy discharge on credit and finances, including the effects on a person’s credit score, the process of rebuilding credit, obtaining new credit and loans after discharge, and maintaining financial stability post-discharge.
Effects of Chapter 13 Bankruptcy on Credit Score
A Chapter 13 bankruptcy discharge can have a significant negative impact on a person’s credit score. The bankruptcy filing and subsequent discharge are public records that will appear on one’s credit report for up to ten years. During this time, the individual may have difficulty obtaining new credit, renting an apartment, or even securing employment, as potential creditors, landlords, or employers may view the bankruptcy as evidence of financial irresponsibility.
Additionally, bankruptcy will impact a person’s payment history, which is the most significant factor in determining credit scores. Missed or late payments leading up to the bankruptcy filing and any payments made during the repayment plan under Chapter 13 will be recorded on the individual’s credit report, further damaging their credit score.
Rebuilding Credit After Chapter 13 Bankruptcy Discharge
Rebuilding credit after a Chapter 13 bankruptcy discharge can be an uphill battle. Still, it is possible to improve one’s credit rating over time by demonstrating responsible financial behavior. Some steps to consider when rebuilding credit after bankruptcy include:
- Reviewing and monitoring credit reports to ensure accuracy and dispute any errors or inaccuracies that may be present.
- Establishing a budget and sticking to it, focusing on cutting unnecessary expenses and building emergency savings.
- Paying bills on time, every time. Consistent on-time payments are crucial in rebuilding credit after bankruptcy.
- Avoiding new debt as much as possible, especially high-interest credit card debt.
- Reestablishing a good payment history by opening a secured credit card or obtaining a small installment loan and making on-time payments.
- Staying vigilant about financial health by regularly reviewing credit reports, staying knowledgeable about credit scores, and monitoring financial progress.
Obtaining New Credit and Loans After Discharge
Obtaining new credit and loans after a Chapter 13 bankruptcy discharge can be challenging, as many lenders will be hesitant to extend credit to someone who has recently completed a bankruptcy. However, some strategies can help improve the likelihood of obtaining new credit, such as:
- Applying for secured credit cards, which require a cash deposit that acts as collateral for available credit.
- Exploring credit-builder loans, which are designed to help individuals build credit by making small, consistent payments toward a loan.
- Shopping around for lenders and discussing the circumstances of the bankruptcy to find a lender willing to work with individuals post-bankruptcy.
- Providing a strong explanation for the bankruptcy, highlighting any extenuating circumstances that led to the financial hardship, and discussing steps taken to avoid future financial crises.
- Building up a savings account and establishing a strong employment history to demonstrate financial stability.
Maintaining Financial Stability Post-Discharge
After a Chapter 13 bankruptcy discharge, the focus should be on maintaining financial stability and avoiding future financial crises. Individuals should focus on:
- Creating and adhering to a realistic budget, emphasizing living within one’s means and limiting unnecessary expenses.
- Building an emergency fund to cover unexpected expenses without resorting to high-interest debt.
- Regularly monitoring credit reports to catch any signs of identity theft or inaccuracies that may harm credit scores.
- Continuing to make timely payments on all financial obligations, as positive payment history is crucial for rebuilding and maintaining credit.
- Seeking professional advice when faced with financial challenges, such as working with a certified financial planner or credit counselor.
By taking these steps and being proactive about rebuilding credit and maintaining financial stability, individuals can successfully move beyond the impact of a Chapter 13 bankruptcy discharge and work toward a brighter financial future.
Working with a Top-Rated New Jersey Bankruptcy Attorney
Filing for Chapter 13 bankruptcy can be a complicated process, and having an experienced attorney by your side can be extremely beneficial. A skilled attorney can guide you through each step of the process, ensuring that you meet all necessary requirements and deadlines. An attorney can also help you prepare and file all required documentation and certifications, including those related to your repayment plan, financial management courses, and discharge request.
An attorney can also provide valuable advice and support throughout the bankruptcy process and after the completion of your repayment plan. They can help you develop a plan to manage non-dischargeable debts and work towards long-term financial stability. Additionally, an experienced attorney can offer guidance on rebuilding your credit score and obtaining new credit and loans after discharge.
Having a knowledgeable and trustworthy attorney can also help ease the stress and anxiety that often comes with the bankruptcy process. They can answer your questions, provide legal advice, and advocate for your best interests in court.
If you are struggling with unmanageable debt, Chapter 13 bankruptcy may be a powerful tool to restructure your debts and find a more manageable way to repay them. However, it is essential to work with an experienced bankruptcy attorney and be aware of the long-term effects on your credit and finances. Filing for bankruptcy is often a last-resort option. Once you are sure that a bankruptcy would help in your situation, working with an experienced attorney is crucial.
At Straffi and Straffi Attorneys at Law, we provide skilled legal assistance to New Jersey residents in need of help in filing for bankruptcy. Our team of qualified legal professionals works diligently to assist filers in navigating the legal processes involved and in helping them get a fresh start on their financial lives. To learn more about how we can help you, contact us today at (732) 341-3800 to schedule a free consultation.