Many people are familiar with a Chapter 7 bankruptcy, where you will get most of your debt canceled. In these cases, you might need to surrender some of your property so that your creditors may be paid. In a Chapter 13 bankruptcy, you are allowed to keep all of your own property, but you will be paying back some or all of your debt over a period of three to five years. Chapter 13 is sometimes referred to as a reorganization bankruptcy, since you will pay a good deal of your debt back.
Not everyone will qualify for a Chapter 13 bankruptcy. Since this type of bankruptcy requires that your income is used to pay back some or most of your existing debts, you may have to prove that you can make those payments. If you are unemployed, or you have low or unsteady income types, you may not be allowed to file for a Chapter 13.
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You may also be ineligible for a Chapter 13 if you have too much debt. You cannot have secured debt over $1,010,650. Your unsecured debt can't be higher than $336.900. Secured debts are those in which the creditor can take an item back if you don't pay them. Unsecured debts like medical or credit card bills don't give creditors that right.
Before you will be allowed to file for Chapter 13 bankruptcy, you must pass credit counseling from specific agencies that have been approved by the U.S. Trustee's office. They may charge you a fee for their courses, but if you can't afford them, the agencies are obligated to provide you with counseling at a reduced rate, or free.
You will also be required to pay a filing fee and file a series of forms. An attorney is usually needed to help you through the process, unless you are experienced in the forms and procedures.
The backbone of your paperwork for a Chapter 13 is your repayment plan. This describes how much money will be repaid, and how it will be used to pay off your debts. Some debts will require payment in full, and these are referred to as "priority debts". These include alimony, child support, tax obligations and wages that are owed to employees.
Your repayment plan will also include payments on mortgages and car loans, including repaying any amounts you are behind already, on those payments. The plan shows that any of your disposable income (monies left after paying those required payments) will be paid on unsecured debts, including medical and credit card bills. These debts may sometimes not have to be repaid, in full or at all, depending on your financial circumstances. You will need to show that remaining income is being put towards repayment of those bills.
Your repayment plan length will depend on the amount you owe and your earnings. If your average income for the six months before your filing day was over your state's median income, you'll be proposing a five-year plan. In cases where your income is lower, a three-year plan may be proposed.
If you can't finish a repayment plan for your Chapter 13 bankruptcy (if you lose your job, or similar circumstances occur) your plan can be modified by your trustee or you may be able to discharge some of the debts due to hardship.
After your repayment plan is completed, the remaining debt eligible will be discharged, as long as you are current on alimony and child support. You also need to prove that you have completed a counseling course in budgeting by an approved agency.
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