Deciding whether or not Chapter 13 is the right course of action for you will require a different set of criteria. Usually, Chapter 13 is reserved for individuals, and business entities cannot apply for Chapter 13. Instead of discharging your debt through a bank, owed amounts of money are reorganized. This type of bankruptcy is designed for those with a regular income who are able to reimburse a portion of their debts via payment plan.
Usually, filing for Chapter 13 denotes you have disposable income, but you do not have enough disposable income to pay off incurring debt. There are more benefits within Chapter 13 versus Chapter 7, which is why most debtors choose this option over the latter. One perk to filing Chapter 13 is your property stays in your possession, and your attorney arranges a payment plan based on your income, assets, expenses and type of debt. Another commonly used term for Chapter 13 is reorganization bankruptcy.
Understanding your financial standing is important when deciding which type of bankruptcy option is right for you. After taking a look at your records, debts and the types of debt owed will point you in the right direction. If your disposable income is enough to repay your debts back monthly reorganization bankruptcy is your best option. This payment plan usually lasts a period of three to five years.
Evaluate Your Debt
Figuring out what type of debt you face is the first step to deciding if Chapter 13 is the correct plan for your financial goals. Unsecured debt consists of medical bills or unpaid credit card debt in comparison to secured debt, which gives creditors the right to repossesses property to pay off loans.
Am I Eligible?
Business cannot apply for reorganization bankruptcy as Chapter 11 is directed specifically toward businesses facing bankruptcy. Chapter 13 is specific for individuals, and in the case of a business owner filing for bankruptcy he or she must claim liability for business-related debts.
Disposable income is another important factor in deciding whether or not Chapter 13 is the right plan for your financial needs. You will have to present the presiding court you have enough income to pay back debt on a monthly basis. Your payment plan must reimburse debts in full or the judge will not approve your petition.
What is a repayment plan?
Organized in terms of creditors, your plan will denote how much money you will pay individual creditors on a monthly basis. A time trajectory is also included in the repayment plan, and you are required to post payment according to the schedule. This plan must be confirmed by the court to receive approval of your petition, and be aware creditors have the right to object to any particular facet of the repayment plan.
How does the process work?
The process is similar to filing for Chapter 7. There is a packet of forms to fill out, such as a petition for the court, list of your property, expenses, income and debts you have acquired.
Organizing a repayment plan proposal is very important to this process. This proposal should set up how you plan to handle your debts and exhibit a payment plan over a period of three to five years.
Proof of tax returns over the past four years, and a certificate demonstrating you have completed credit counseling is also required for Chapter 13 bankruptcy.
Once the court in your area approves your petition you will make payments every month in accordance with your payment plan. Following this plan is crucial to your future financial goals.
You might be asking who am I paying every month? A trustee will facilitate transfer between you and creditors monthly. This official is chosen by the court to oversee your case, and in turn collects your payments to satisfy your monthly costs to each creditor. To complete your repayment plan you must:
• Make your payments on time every month. A condition will exist in the final paperwork outlining the penalty in the case of a defaulted payment
• By completing every payment on time your remaining debt will be discharged after the repayment plan time limit