If you can’t seem to stay on top of all your monthly obligations, filing for chapter 13 may be the answer. This form of consumer bankruptcy was designed for those who have at least some disposable income to knock out their debts but struggle to manage everything from month to month.
Also called “wage earner’s bankruptcy,” chapter 13 makes up roughly 20 percent of all consumer filings. If you’re wondering what it entails, here are the answers to some of the most frequently asked questions about this approach to discharging debt:
1. Are There Limits on How Much Debt You Can Include in Your Chapter 13 Petition?
The Bankruptcy Code limits how much debt you can reorganize by filing for chapter 13. These limits are updated every three years. Until 2022, they remain at $419,275 in unsecured debt and $1,257,850 in secured debt.
2. How Long Does Chapter 13 Take to Discharge Debt?
Unlike chapter 7, which erases applicable debts in a matter of months, severing the petitioner’s relationship with each lender in the process, chapter 13 aims to help petitioners catch up on past-due obligations so they can reinstate their original arrangements. As such, the proceedings may not actually discharge any debt at all.
During chapter 13 proceedings, the petitioner proposes a three- to five-year repayment plan that allows them to catch up on past-due bills while also keeping up with their current obligations. The debtor’s monthly payments are distributed among the debts that are rolled into this plan based on priority. Any unsecured, nonpriority debts that remain at the end of the plan three to five years later are then discharged.
Priority debts generally include tax obligations, alimony, child support, and penalties owed to government entities. Nonpriority debts, on the other hand, include medical bills, credit card balances, back rent, utility bills, health club dues, personal loans, and union dues.
3. What Are the Advantages of Filing for Chapter 13?
In addition to providing the breathing room you need to catch up after falling on hard times, chapter 13 offers a host of benefits. Unlike chapter 7, for example, it allows petitioners to retain their property, including nonexempt assets like vacation homes and luxury vehicles. As long as you’re able to catch up on the payments for such assets while also staying current on their monthly obligations, you should be able to keep them all.
In that same vein, chapter 13 can protect your home from foreclosure. Whereas some petitioners who file for chapter 7 are merely able to stall the foreclosure proceedings, chapter 13 can stop them altogether.
Finally, chapter 13 implements an automatic stay. As soon as you file your petition, creditors are prohibited from harassing you, which will provide considerable peace of mind.
Speak with a Jackson Bankruptcy Attorney
To see if you’re a good candidate for chapter 13, turn to Brown Bass & Jeter, PLLC. Our compassionate team will review your financial situation without judgement to help you determine how best to regain your footing. Call 601-487-8448 or fill out our Online Contact Form to schedule a free case review with a bankruptcy lawyer in Jackson.