Why File Chapter 13 Bankruptcy?
Chapter 13 bankruptcy may be used to catch up on past due essentials:
- Stop a foreclosure sale and catch up on mortgage or property taxes
- Get help with repo of a vehicle and possibly lower your regular monthly payment
- Stop a tax levy or garnishment and repay taxes in an orderly way
If you don’t qualify for Chapter 7 bankruptcy, this may be an option. Chapter 13 discharges (forgives) more debt than Chapter 7.
There are downsides to Chapter 13 Bankruptcy too. To get your discharge, you have to make payments to a trustee for 3-5 years. During that time, anything financial you need to do will likely require a court order. You lose some freedom to do what you want to do as far as loans, etc.
Generally, Chapter 13 bankruptcy is a long, hard road. If you must file Chapter 13, you need to be sure you are getting a big benefit. If you are in our area and need a consult, Carol will estimate how much your monthly payment will be and how long you will be required to pay the trustee.
How Does Chapter 13 Bankruptcy Help?
How Chapter 13 Bankruptcy Works
Chapter 13 Bankruptcy varies from Court to Court. In a nutshell, this is how Chapter 13 bankruptcy works here in East Texas.
The debtor files a “Chapter 13 Plan” with the bankruptcy court which sets out a monthly payment that you will pay over a 3 to 5 year period. The plan will specify the property, such as your home or cars you are keeping, and how you propose to pay this debt. Some debts, such as taxes and secured debts may be paid in full. Other creditors may receive only a partial payment or no payment.
In many cases, unsecured creditors do not receive any payment. Understanding who gets paid and how much in a Chapter 13 Plan can be confusing. Every person’s case is different. Unless your case is very complex, a bankruptcy attorney can usually roughly estimate how much your Chapter 13 Plan payment will be at your initial consultation. The Bankruptcy Court must approve every Chapter 13 plan.
After the bankruptcy documents are filed with the court, you make a monthly payment to a bankruptcy trustee. Once the Chapter 13 Plan is approved by the Court (called “confirmed”), the Chapter 13 Trustee distributes the money to the creditors as set out in the Chapter 13 Plan. The Chapter 13 trustee in Longview, Texas, and surrounding areas (including Gregg, Harrison, Upshur, Panola, Morris, Marion, Cass, and Camp counties) is Mr. Lloyd Kraus. The Chapter 13 trustee’s website contains information about Chapter 13 bankruptcy in general and the specifics about each filed case.
Ready to find out whether bankruptcy can help you?
Frequently Asked Questions
How much does Chapter 13 bankruptcy cost?
Chapter 13 generally costs about $3,500 for non-business cases and $4,000 for business cases. There are additional charges for extra work that may need to be done on your case if you run into problems or if the case is complex. There is also an initial filing fee of $310. You do not have to pay all of the fees upfront. But that alone is not a good reason for filing Chapter 13 over Chapter 7. Read more details about the cost of Chapter 13.
What are the pros and cons of Chapter 13?
The main advantage of Chapter 13 bankruptcy is you can catch up on arrears on essentials, such as your home and car. The biggest disadvantage is the cost and how long it takes to finish the bankruptcy (3-5 years). Read more about the good, the bad, and the ugly.
How much will my monthly payment to the trustee be?
The monthly payment in Chapter 13 depends on your income and how much debt you have. Most people don’t have to pay back all of the debt. But certain debt must be paid back. Each case is different. Learn more details about what the plan payment includes.
How long will Chapter 13 last?
Chapter 13 lasts at least 3 years and can be as long as 5 years. The main thing that determines how long you must stay in Chapter 13 is your income and what debts you are required to pay. Learn more about how long Chapter 13 bankruptcy lasts.
What are the steps in Chapter 13?
Chapter 13 has 6 steps:
- Prepare and file the case
- Attend the Chapter 13 hearing – these are by phone right now due to the pandemic
- Get approval of your Chapter 13 plan (your monthly payment amount and the debts you propose to pay back)
- Make sure all the creditors you need to pay backfile claims and object to claims that should not be filed
- Make your monthly payments on time according to the plan
- Get your discharge!
This is what should happen in the typical Chapter 13 case. Of course, life being unpredictable, there are often hiccups along the way. Read more details about the Chapter 13 process.
How will filing bankruptcy affect my credit?
Chapter 13 can be reported on your credit report for up to 10 years. Right now (2020), all the major credit bureaus only report for 7 years. If you need to finance a car (or even a house) while in bankruptcy, the Judge must approve the new credit. Learn more about how bankruptcy impacts your credit score.
For more information on Chapter 13 bankruptcy, see our blog posts on the topic.