The pile of bills on your kitchen counter is slowly turning into a mountain and the collection calls never seem to stop. If you are finding it impossible to get back on track with paying your bills, if you can’t see an end to the cycle of falling behind, it may be time to file a Chapter 13 Bankruptcy.
The word “bankruptcy” alone is terrifying, making most people feel embarrassed or ashamed because they let things get so far past due.
In this article I will discuss:
- What is a chapter 13 bankruptcy?
- Who should apply for a chapter 13 bankruptcy?
- How do you apply for a chapter 13 bankruptcy?
- Where do you find a chapter 13 bankruptcy lawyer in Cleveland?
- And most importantly, whether or not a bankruptcy trustee monitors your income in Chapter 13
What Is a Chapter 13 Bankruptcy?
A chapter 13 bankruptcy, sometimes called a wage earners plan is a plan for regular-income individuals to pay back all their owed debt. Under this plan, debtors are not able to add on any additional collections and cannot continue those currently in place.
This type of bankruptcy acts similarly to a consolidation loan where the individual pays a trustee each month and the trustee then distributes the payments to the creditors. During chapter 13 the individual has no contact with the creditors only the trustee.
The most notable aspect of a chapter 13 bankruptcy is that individuals do not have to surrender valuables and may be able to keep a home that has entered foreclosure.
Anyone that is employed, even if it is self-employment is eligible to file a chapter 13 bankruptcy as long as the combined debt is not over $2,750,000 at the time of filing.
An individual that has been recently denied bankruptcy in the last 180 days due to a failure to comply or voluntary dismissal may not be able to qualify for this type of bankruptcy.
Who Should Apply for a Chapter 13?
Deciding which type of bankruptcy is right for you can be daunting, there are so many different kinds and that can leave someone apprehensive to even file for bankruptcy. So, how do you know if chapter 13 is right for you?
Danger of Foreclosure
If you have fallen behind on mortgage payments to the point of risking foreclosure and you are worried about losing your home, filing a chapter 13 bankruptcy creates an “automatic stay” which means you cannot lose your home due to missed payments. While the lender will continue to send monthly payments and will add on some late payment charges chapter 13 will take into consideration the individual’s income and create small monthly payments to help you catch up on your mortgage. Once the payments are caught up chapter 13 will end, and you will become responsible for keeping your payments caught up.
Danger of Repossession
Similarly, if you have fallen behind on car payments and are at risk of repossession you also can file for a chapter 13 bankruptcy. This again will stop the lender from repossessing your vehicle and will create small monthly payments based on income to help you get caught up. The individual will continue to make their regular monthly payments as well as a little extra to get caught up.
Previous Chapter 7
An individual that has previously filed a chapter 7 bankruptcy is unable to file another bankruptcy for 8 years. If this individual finds themself in too much debt, they can file a chapter 13 bankruptcy to get caught back up. It is important to note in this case chapter 13 will be the only option available to them.
Taxes
An individual that has fallen behind on paying back taxes for several years and has a lot of tax debt may file a chapter 13 bankruptcy and create a payment plan. In this case, the court will determine which taxes are “priority” and which are “non-priority”. Those that fall under priority will be paid first and in full during the payment schedule. Those that are not a priority will be lumped together and paid back in a portion of what is owed, and the rest will be released at the end of the plan.
Risk of Utility Shut-off
A chapter 13 bankruptcy will keep utilities from being shut off due to late or missing payments or get them turned back on if they have already been shut off. A lawyer can file an emergency bankruptcy and have utilities turned back on the same day. An individual will be able to make payments on the past due amounts and because these are considered unsecured debts it is most likely that the individual will not have to pay back all that is owed.
Medical Bills
When an individual becomes ill or has a medical emergency the charges can pile up quickly even for those with health insurance. Medical debt is considered unsecured debt and during a chapter 13 bankruptcy the individual will pay back a portion of what is owed based on their income and the rest will be forgiven based on court-decision.
Student Loans
A chapter 13 bankruptcy will stop lenders from trying to collect a debt. Because student loan debt is non-dischargeable, they must be paid back and will not go away because of bankruptcy. During bankruptcy, student loans are considered non-priority and will be lumped together with other debts and the individual will make small payments towards it during the payment plan. However, it will be up to the individual to pay the remaining debt and all the interest that has accrued once the payment plan has ended.
Credit Card Debt
Credit card debt is considered unsecured debt and during a chapter 13 bankruptcy, the individual will pay a portion of these debts according to their income. Just like with student loans the individual will be responsible for the remaining balance and interest at the end of the payment period.
Divorce
Trying to establish a new financial normal during a divorce or separation can cause debt to pile up due to the other half of the income disappearing. If an individual falls behind on child support or alimony a chapter 13 bankruptcy can be filed to make repaying those debts easier. The full amounts will have to be repaid but they can be broken down into smaller payments. The current monthly amount will still be due on top of the extra amount added to catch up on the debt.
Other Financial Issues
Lawsuits, bank freezes, and wage garnishments can be the final push that sends an individual to look for options with bankruptcy. Creditors will stop at nothing to collect what is owed to them. If too much time passes, they can file to take portions of your checks or freeze your bank account until you take action. Filing for bankruptcy will not make the debts go away but it can make repaying them more manageable.
How To File a Chapter 13 Bankruptcy?
Once you have decided that chapter 13 bankruptcy is right for you, how do you get started? The first thing you need to do is make sure you don’t have too much debt for this particular type of bankruptcy. You also need to be sure you have some sort of income that you will be able to use to create a repayment plan. The court will not allow you to proceed if you don’t have enough income to create a feasible plan.
Once you have all of the information you need you will have to fill out all of the forms, if this is your first time filing a chapter 13 it is probably best to find a lawyer to help you through the process. You will also be required to take a credit counseling course before filing your paperwork.
It is finally time to file your paperwork, a trustee will verify all the information you have submitted like bank statements, paychecks, tax returns, and other things you’ll submit later on. Within two weeks of the official file date, you will meet with your trustee and attempt to get your bankruptcy approved. You’ll have to pay several fees at this time.
Once approved you will take a debt education course and begin paying back your debts. After the repayment period, you can celebrate because you are almost caught up. Aside from any leftover interest or payments, you are completely caught up on the amount you originally filed with.
Does a Bankruptcy Trustee Monitor Your Income in Chapter 13?
A trustee is an administration that is assigned to you during your bankruptcy. In chapter 13 a trustee is responsible for receiving monthly payments and then distributing them to creditors following the payment plan set in place.
While a trustee will not monitor your income during a chapter 13 bankruptcy it is vital to report any changes to them, no matter how small. Any information that is withheld from a trustee can result in a charge of fraud resulting in a punishment of up to $250,000 and up to five years in federal prison. So, while the short answer is “no,” in the end the answer is kind of “yes,” considering any major income changes would need to be reported.
Where To File for Chapter 13 in Cleveland, Ohio
I’ve been practicing chapter 13 bankruptcy attorney in Cleveland, Ohio for nearly 19 years. I opened my firm in 2013 where and I’ve been able to change the lives of over 2,000 families. I’ve given these families a fresh start and I’d like to help you too. Feel free to contact me online or call me at 216-526-0309.
