Overview of Chapter 13 Bankruptcy
When people accrue debt in an amount that significantly outweighs their income or earning capacity, they may consider filing for bankruptcy. While filing for bankruptcy may not be an ideal scenario, depending upon which chapter of the U.S. Bankruptcy Code the bankruptcy petition is filed under, people may have the ability to prevent their homes from being foreclosed upon while, at the same time, be able to get out from under crushing amounts of debt. Specifically, if people file bankruptcy petitions under Chapter 13 of the U.S. Bankruptcy Code and said petitions are granted by a U.S. Bankruptcy Court, they may avoid the liquidation of their assets that occurs when filing under Chapter 7 and will have a chance of significantly alleviating their financial burdens.
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy, also called the wage earner’s plan, is a process which allows individuals with regular incomes to restructure their debt. When someone files for bankruptcy under Chapter 13 of the U.S. Bankruptcy Code, they agree to be placed on a debt repayment plan for a period of three to five years and to make installment payments to their creditors in the amount set forth in the repayment plan.
Chapter 13 bankruptcy is different from Chapter 7 bankruptcy because Chapter 7 bankruptcy involves the liquidation of a company’s or individual’s assets for the purpose of paying off as much of the debtor’s debt as is possible. Chapter 13 bankruptcy, on the other hand, allows individuals to save their assets from liquidation by proposing and following through with a debt repayment plan, which will provide payments to all of the debtor’s creditors.
The Filing and Repayment Process
To file for Chapter 13 bankruptcy, you must first meet the eligibility requirements mandated by state and federal law. One eligibility requirement is that you be an individual. An individual can mean someone who is a mere employee of a business, but it can also include people who are self-employed or doing business as an unincorporated business. Corporations or other business entities may not file for Chapter 13 bankruptcy. Another eligibility requirement for filing for Chapter 13 bankruptcy is that individuals’ unsecured debts are less than $394,725 and individuals’ secured debts are less than $1,184,200. If individuals’ debts are higher than these amounts, their Chapter 13 bankruptcy petitions will be denied for failure to meet the eligibility requirements for Chapter 13 bankruptcy. Lastly, in order to be eligible for Chapter 13 bankruptcy, individuals must undergo credit counseling from an approved agency before filing Chapter 13 bankruptcy. During credit counseling, the counselors will help individuals formulate a feasible repayment plan, sometimes called a debt management plan, that can be presented in their bankruptcy petitions. Although this requirement can be waived by the bankruptcy court or bankruptcy administrator because the area lacks an approved credit agency, generally, those seeking to file Chapter 13 bankruptcy must undergo credit counseling within 180 days of filing a Chapter 13 bankruptcy petition.
After ensuring that you meet the above eligibility requirements, you should file a Chapter 13 bankruptcy petition with the U.S. Bankruptcy Court that has jurisdiction over your case.
Along with the filing of the petition, which will state the reasons why you are asking for Chapter 13 bankruptcy relief, you must also file:
- A schedule of your assets and liabilities
- A schedule of your current income and expenditures
- A statement of your financial affairs
- A schedule of all executory contracts and unexpired leases you are a party to
- A certificate of completion of credit counseling
- Any repayment plan formulated during credit counseling
- Proof of payment by your employer within the last 60 days
- A statement of monthly net income with any anticipated increase in income after filing
- A statement of any interest owed on federal or state school loans
Once the petition is filed and deemed acceptable by the U.S. Bankruptcy Court, the Court will then appoint a trustee to the individual’s case. The trustee, after reviewing all of the documents submitted by the individual with his or her petition as well as the individual’s most recent tax filings, will hold a meeting with the individual’s creditors and the individual, during which the creditors may ask the individual questions about his or her finances and the proposed repayment plan under oath. After this meeting, the trustee will then act as a middleman between the individual and the individual’s creditors by collecting all payments owed by the individual and then distribute said payments among the individual’s creditors.
Advantages of Chapter 13 Bankruptcy
While filing for Chapter 13 bankruptcy may be a time consuming process, it provides those filing for it with some important advantages. First, if a petition is filed and not rejected by the Court, then it creates an automatic stay of collection of most of the individual’s debts. This means that, upon the filing of a Chapter 13 petition, creditors may be precluded from trying to collect debts owed by the individual and from trying to foreclose on the individual’s home as a means to collect on said debts. Second, Chapter 13 bankruptcy provides individuals with more time to pay off debts they owe. Third, because a trustee is charged with administering the payments to the individual’s creditors, Chapter 13 allows the individual’s debt to be treated as consolidated, making it easier to manage. Lastly, use of a trustee as a middleman prevents the individual from being hassled by their creditors while the repayment plan is in effect.
Contact a Clifton Bankruptcy Attorney for a Consultation About Filing for Chapter 13 Bankruptcy in New Jersey Today
If you are struggling with debt, you may need a fresh start financially. An experienced bankruptcy and debt relief attorney can help you explore your options and determine the best course of action for you, your family, and/or your business. The experienced New Jersey bankruptcy lawyers at Silverman & Roedel, LLC understand the nuances of New Jersey and federal bankruptcy laws, so we can help you protect your interests. Call us anytime at (973) 772-6411 or fill out the online contact form to schedule a confidential consultation. We have an office conveniently located at 1187 Main Avenue, Suite 2C, Clifton, NJ 07011.
The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact our law firm directly.