We all strive to lead a good and financially successful life. However, not everything in our lives goes as planned. Financial adversity does arise, and some of us might even find ourselves contemplating filing for bankruptcy. Even if you didn’t ever plan to be a millionaire, you will probably not have planned for going bankrupt. Actually, it can be a helpful strategy.
In this guide, we’re diving into how to file bankruptcy Chapter 13, so that if this is the most suitable type of bankruptcy for you, then you can take advantage of the strategy to start to rebuild and rehabilitate your finances.
Chapter 7 vs. Chapter 13
There are two types of bankruptcy that are very popular among average consumers. These are Chapter 7 and Chapter 13. The good news is, both of them can significantly free you from debt. The main difference, though, is how they will do so.
A Chapter 7 bankruptcy will require you to surrender any non-exempt property that you own. These are assets that the law deems unnecessary in your journey towards financial redemption. Some examples are collections, family heirlooms, secondary homes, and secondary vehicles.
Quick side note: The thinking that you will lose everything if you file for Chapter 7 bankruptcy is a misconception. Being able to keep things like family heirlooms and properties can still leave you in a more reasonable financial shape.
Meanwhile, Chapter 13 is a form of bankruptcy that won’t require you to turn over any assets. Instead, you will be required to work out a payment plan that can usually take 36 to 60 months to repay your debt. It also gives you the chance to renegotiate terms and own up to your financial mistakes in the past.
While we highly recommend Chapter 13, we still suggest for you discuss your options further with your lawyer or financial advisor. Each case is unique, after all, so there’s no way for us to determine the best course for you to take.
If you can opt for Chapter 13, there is quite a lot of work involved, and steps that you have to take to keep your eligibility for this type of bankruptcy.
Filing for Bankruptcy Chapter 13
Once you have decided to file for this type of bankruptcy, here is a quick guide on what to do next:
Determine Your Eligibility
Since the law will require you to pay your debt back, ensuring that you actually have the income to do so is going to be crucial in determining your qualifications. Someone will only be eligible for a Chapter 13 bankruptcy if “the individual’s unsecured and secured debts are less than the maximum amounts stated in section 109(e) of the Bankruptcy Code”. At the time of writing this, that means $419,275 in unsecured debt and no more than $1,257,850 in secured debts borrowed against property and businesses, for instance.
Take Care of the Paperwork
After confirming that you are indeed qualified, you can then move on to fill out your bankruptcy forms. While there really is no law that requires an individual to file for bankruptcy (in fact, this method is referred to as “filing pro se”), we still strongly recommend you to do so. Not only will they help you in understanding the nitty-gritty parts of your bankruptcy documents, but they can also prevent potential financial and legal blunders brought about by uninformed decision-making.
Take the Course
Here’s something that the law does require: the completion of a credit counseling course. The certificate that you will earn at the end of the program will be part of your requirements. For some people with a difficult history with finances, this course can be useful and help you to manage your affairs better in the future.
Pay the Fees
With your course done and your documents ready, you are now ready for filing. You will then be required to pay a bankruptcy filing fee.
Work With Your Trustee
You will then need to work with your trustee to work out your payment plan. You will also be required to attend two hearings. The court allows creditors to attend, especially if they want to ask questions or express some concerns – but honestly, they rarely do.
Make Those Payments
This is probably the longest step in your bankruptcy journey. We recommend making your payments a few days before the actual due date. This will prevent any missed due dates that can dismiss your case.
Take Another Course
You will be required to take another course during your repayment phase. The court will provide you with the details of this, and though it can feel like you’re being punished, it is actually a good sign that you’re doing great so far.
Get a Bankruptcy Discharge
Finally, you will get a bankruptcy discharge upon completion of your repayment plan. You won’t need to worry about any unpaid balance. As long as you’ve kept your promise and have completed your repayment plan, you are done and free to open a new chapter of your life. Congratulations.
Life After Bankruptcy
We understand that the steps that we have outlined above are easier said than done. Bankruptcy, in whatever form, will always be a stressful part of anyone’s life. Fortunately, though, it doesn’t carry the stigma that it once did just a few decades ago. People are more understanding now.
Bankruptcy is a method to help people to rebuild their lives and get financial affairs in order, it is designed to help and educate rather than just give people a clean slate or stop them from borrowing. There are restrictions in place, and the record of bankruptcy can remain for up to 10 years on some credit reports, but plenty of people who have been bankrupt have come back stronger as a result. Chapter 13 is also great for this as it can allow you to keep assets you don’t want to get rid of.
There are even personal loans for bankrupts available, especially if you are willing to provide security against the loan. There may be a lot of stereotypes, and some people assume that personal loans for bankruptcy are impossible, but this is not the case at all.
We also know that even without that stigma, no one will be proud to have other people know of their predicament. That’s why it can be particularly stressful to know that bankruptcy cases are on public records. We can simply hope that no one will have the cause to view them.
There are also cases that might require your payments to be taken out from your payroll rather than allow you to make the payment.
However, if you do believe that it can potentially endanger your work, know that there are ways to work out a more discreet payment plan with your trustee and the court itself. Again, the important factor of Chapter 13 is your capacity to pay, after all.
If your finances are in good health, we hope that you won’t need this information anytime soon. However, for those who do need a bit of extra help and a way to get out of the habit of spiraling debt, Chapter 13 can be the solution. We are glad to have offered some assistance. Good luck!