If you’re considering filing for bankrupcty, it’s important to know your options:
- Chapter 13 Bankruptcy – “Wage earners” bankruptcy
- Chapter 7 Bankruptcy – “Liquidation” bankruptcy
Yes, there are different types of bankruptcy. Which one is best for you is determined by your specific situation and personal needs. The easiest way to figure out which one to file for is to contact an Arizona bankruptcy lawyer. A bankruptcy attorney can make the entire bankruptcy process faster, smoother, and less stressful. You can rest easy knowing your lawyer has given you all the information you need to help you make the best choice for your finances and your future.
What is Chapter 13 Bankruptcy?
- Allows you to keep your property
- You repay debt over 3-5 years
Chapter 13 Bankruptcy, also referred to as “wage earners” or “reorganization” bankruptcy, is a specific type of bankruptcy. In fact, it is one of the 2 most popular types of consumer bankruptcies (with the other being Chapter 7).
Chapter 13 allows you to keep your property while repaying some of your debt (or all, depending on your case) over a 3-year or 5-year period. It’s basically an installment plan.
Most often the term is 3 years, unless your monthly income is greater than the applicable state median. In that case, the term will be increased to 5 years.
Your personal situation will determine which debts you need to pay, your monthly payments, and what happens to your debts at the end of your case. This information will all be discussed heavily in your repayment plan.
Chapter 13 is also known as “Wage Earners” or “Reorganization” bankruptcy.
Who is Chapter 13 Bankruptcy best for?
- Individuals and Business Owners
- Wanting to keep their property
Both individuals and business owners may file for bankruptcy under chapter 13.
If you’re unsure whether Chapter 13 is the best choice for you, consider this:
Filing under chapter 13 is a great choice for people worried about losing their property. If you want (or need) to keep property, you’ll want to file under chapter 13 rather than chapter 7. If you file under chapter 7, you risk losing your valuable property.
Facing foreclosure? Chapter 13 bankruptcy can help you keep your house.
Finally, Chapter 13 Bankruptcy allows you to set up arrearages in your repayment plan.
Arrearage – A legal term that represents the amount of money you’re behind on paying your mortgage before filing for bankruptcy.
With chapter 13, you can keep your most valuable assets that you’d otherwise lose if filing under chapter 7. If you’re facing foreclosure, chapter 13 bankruptcy is a good choice for you.
What Chapter 13 Can Do that Chapter 7 Can’t:
- Provide you with bankruptcy protection even if your income is too high to qualify for a Chapter 7 case (or if you got a discharge in a former Chapter 7).
- Allow you the length of the plan to pay back past due amounts owed on homes, vehicles, and other loans with collateral.
- Allow you to pay past due income taxes and domestic support obligations like child support and alimony over the 3- to 5-year plan.
- Permit you to set new terms for payment of an auto loan older than 2.5 years.
- Protect your co-signer from having to pay on a personal loan.
- Allows you to better manage high payments on student loans.
- Allows you to keep property you’d lose in a Chapter 7 case.
- Allows you to pay bankruptcy attorney’s fee as part of your repayment plan instead of up front.
Do I qualify for Chapter 13 Bankruptcy?
While there is no income requirement for chapter 13, you still must meet some requirements.
In order to qualify for Chapter 13, you must satisfy the following requirements:
- Have regular monthly income
- Unsecured debt must be below $394,725
- Secured debt must be below $1,184,200
How do I file Bankruptcy under Chapter 13?
In order to file for chapter 13 bankruptcy, you must submit a repayment plan to the court.
Since this process can be very complex, it is always best to hire a bankruptcy attorney to help you complete the filing process successfully.
What’s a Hardship Discharge?
Sometimes after a debtor files for chapter 13 bankruptcy, life happens. Certain circumstances may suddenly prevent them from completing their repayment plan. Examples may include a house fire, family tragedy, etc.
In these cases, the debtor may ask the court for a “Hardship Discharge.”
In order to qualify for a Hardship Discharge, the debtor must meet these requirements:
- the debtor’s failure to complete plan payments is due to circumstances beyond the debtor’s control and through no fault of the debtor;
- creditors have received at least as much as they would have received in a chapter 7 liquidation case; and
- modification of the plan is not possible.
Injury or illness that precludes employment sufficient to fund even a modified plan may serve as the basis for a hardship discharge. The hardship discharge is more limited than the discharge described above and does not apply to any debts that are non-dischargeable in a chapter 7 case. 11 U.S.C. § 523.