In times of serious financial hardship, many start thinking of giving up on their debts through filing for bankruptcy. The easiest and the fastest way to get your debts written off is filing under Chapter 7 which means instant debt liquidation. Seemingly the most attractive, Chapter 7 brings a pool of consequences many are not ready to face: withdrawal of assets, the title of bankrupt, inability to get a credit line and complications with getting a job – all these aspects make many refuse of bankruptcy idea.
Filing for Chapter 13 is a great “softer” alternative to debt burden liquidation, as this Chapter allows keeping all assets, including a house. By filing for bankruptcy under Chapter 13 a person gets an opportunity to reorganize their loans in order to repay the debt in a period of 3-5 following years. By having the petition approved by the U.S. court, the person acquires a protection from creditors and collectors (and their actions), while he/she still may lead a normal lifestyle.
The meaning of Chapter 13
Chapter 13 implies not a debt discharge, but a debt repayment plan where the debtor describes the way he/she plans to pay the part or the full amount of debt within three or five years.
Depending on the median income, the debtor may receive considerable interest rate reduction on their loans.
This plan must be approved by the creditors. After the bankruptcy petition is approved no actions from the side of creditors or collectors are legally allowed. The debtor wins time to get back on track and pay off the debt. Not a single asset will be withdrawn from a debtor in a favor of creditors within the period of bankruptcy.
Usually, people who do not qualify for Chapter 7 due to higher median income that required, file for Chapter 13 seeing it as a better alternative to the endless and exhausting trap of unbearable loans and taxes repayment.
In short, it’s a really efficient way to regain a control over own financial life without being constantly distressed by creditors.
Who can qualify for Chapter 13? 150
In order to qualify for Chapter 13, one must have enough income to pay at least the part of the debt. At the website of U.S. court, there is a full list of requirements for those who decide to file under Chapter 13.
Depending on the results of the test (where the income is calculated), the repayment plan will include the obligation to repay the whole debt or only a fracture of the debt. Other words, you will have to convince the court your earnings allow you to meet financial obligations described in your repayment plan.
There is also a debt ceiling for Chapter 13, so in case the total amount of your debt is over 394.725$ (for unsecured debts), you are ineligible for filing under this chapter.
When it comes to secured debts, the ceiling is 1.184.200$ for qualifying for Chapter 13.
What are the benefits of filing for Chapter 13?
- Chapter 13 allows keeping all assets intact, while Chapter 7 implies assets withdrawal (with the purpose to sell it off).
- People get a debt repayment delay for such non-dischargeable (under Chapter 7) debts like child support, taxes and penalties, alimony, student’s loan and some other types).
- Chapter 13 doesn’t make you bankrupt in fact, unless you’ve violated the delay period of 3-5 years allowed by the bankruptcy petition.
- You may still get a credit line from banks as to keep your usual comfortable lifestyle, while no creditor or collector is allowed to disturb you.
- If after the certain period after the petition is approved the debtor still finds he is unable to repay the debt he/she may convert to Chapter 7 in order to have all debts dismissed instantly.
- If, based on the changed financial situation, the debtor decides he doesn’t need the protection of Chapter 13 anymore; the bankruptcy could be terminated (with no fees or additional charges).
- The terms of repayment plan are flexible and depend on your average earnings and other criteria, so it is fully customized in accordance with your needs and possibilities.
Cons of Chapter 13
- Your debts cannot be just dismissed as if you would file under Chapter 7. If the test shows your income is enough to repay at least a tiny part of your debts, you will have to develop a repayment plan.
- Filing for Chapter 13 is a longer and more expensive process.
- You repay the debt from your disposable income, means you may not spend the money left from paying for food, medical care, utility bills, for something else than for repaying debts. Your expenses will be under the strict control.
- If you’ll fail with getting approval filing for Chapter 13, it will become way harder to file for Chapter 7.
- If you have previously successfully filed for Chapter 13, you will need to wait 6 years until it will be legally possible for you to file under this chapter again.
- The same as with other chapters, the information about your bankruptcy will be publicly available for your potential employers and creditors. Needless to say, your credit score will drop dramatically.
How to file?
First, you must fill the forms, placed on the U.S. court website. You must calculate your income with the highest accuracy in order to avoid mistakes (which may cost you a refusal). Based on the results of the test, check it twice whether you do really qualify for Chapter 13.
You will have to develop debt repayment plan and get an approval of creditors. Before the court makes a decision on your petition, you will be invited to attend a creditors meeting, where you’ll be asked questions about your bankruptcy.