What is Chapter 13 Bankruptcy & How Does it Work?
Chapter 13 bankruptcy is an interest-free repayment plan on your debts that you can actually afford, one that you can pay off over time (usually 3 to 5 years). It is overseen by the Bankruptcy Court to make sure everyone plays by the rules, and it allows you to pay your creditors back on terms that are favorable to you, without any interest. This is different from a Chapter 7 filing, which simply liquidates your assets in order to pay back creditors. Unlike Chapter 7, Chapter 13 bankruptcy allows you to keep your home or your car, even if you have been behind on payments.
Furthermore, all of your creditors are paid with a single monthly payment to the Bankruptcy Trustee rather than multiple payments to different creditors due at different times during the month. This payment satisfies all your debt obligations, rather than just one creditor being paid. Chapter 13 also doesn’t negatively affect your credit the way a Chapter 7 would.
How do I know if Chapter 13 bankruptcy is the right option for me?
- You need to prevent a foreclosure on your home, or a repossession of your vehicle
- You are getting wage garnishments & harassed (or sued) by creditors
- You want to eliminate a 2nd or 3rd mortgage and your home is valued below the 1st mortgage
- You expect to have monthly income or wages, and you don’t qualify for a Chapter 7
- You have certain debts like unpaid income taxes, a student loan, or child support, all of which cannot be discharged in Chapter 7. Again, Chapter 13 allows you to pay these back over a 3 to 5 year period with no interest
- You have a co-debtor on a personal debt. If you file for Chapter 7 bankruptcy, your co-debtor will still be on the hook — and your creditor will undoubtedly go after him/her for payment. If you file for Chapter 13 bankruptcy in Washington, the creditor will leave your co-debtor alone as long as you keep up with your (interest-free) bankruptcy plan payments
The “Means Test” – When Chapter 13 is the only option.
In 2005, Congress created a new bankruptcy law in which anyone who files for Chapter 7 must show that their monthly income is below the average income for people in their area. This is called the “means test.” If your income is above the designated average and you wish to file for bankruptcy, then you’ll be required to file Chapter 13 instead of Chapter 7. At your initial consultation, we’ll help you figure out if you’re eligible for filing under Chapter 7, or whether it makes more sense to file under Chapter 13.
Related: Boomerang Loans After Bankruprtcy
How long will my Chapter 13 Bankruptcy case take, and what’s required of me?
We can get the process started very quickly and start protecting you right away regarding many of your debts, including foreclosure of your home. Chapter 13 bankruptcy cases usually take 3 to 5 years to complete, depending on the kind of debt you have as well as the amount. Your role in the process will be to make monthly payments during that time. You will also need to attend a few simple administrative hearings. These hearings are typically short and relatively informal, and we’ll be there with you to hold your hand and make sure it all goes smoothly.
Costs: How much do I have to pay to file for Chapter 13 bankruptcy?
Attorney fees vary based on the complexity of your case, and most of the attorney’s fees can be paid as part of your Chapter 13 payment plan (without interest). Typically, a bankruptcy attorney’s fee ends up being a very small percentage compared to the total amount of debt you are able to eliminate.