Understanding how Chapter 13 bankruptcy works may help those struggling financially to determine if it is the right debt relief option for them.
Many people in Tennessee and across the U.S. may struggle financially due to job loss, a change in their circumstances or numerous other factors. In fact, CNBC reports the total household debt in the U.S. reached $12.58 trillion in the fourth quarter of 2016. Some of those who are dealing with overwhelming debt choose to file for Chapter 13 bankruptcy. Understanding how this debt relief option works may help people identify whether it is the right one for their situations.
To qualify for Chapter 13 protection, people must meet certain eligibility requirements. First and foremost, those pursuing this option must have a regular income. Individuals or married couples may file Chapter 13 bankruptcy. Unlike other options, however, Chapter 13 is not available to partnerships or corporations.
The secured debts of those pursuing this protection cannot exceed $1,149,525 and their unsecured debts cannot total over $383,175. They must also have completed credit counseling within 180 days of submitting their petitions to the court. People may be ineligible for Chapter 13 bankruptcy if within 180 days of their filing, they voluntarily withdrew or had prior petition dismissed because they did not comply with the court order or failed to appear.
The crux of most Chapter 13 bankruptcy cases is the repayment plan. Through these plans, people pay back all or a reduced portion of their debts over a three-year or five-year period. They must file their plans with the court for approval within 14 days of filing their bankruptcy petitions.
For the duration of their repayment plans, people make fixed biweekly or monthly payments to their bankruptcy trustee. The trustee then forwards set amounts to specific creditors. While repayment plans do not have to include people’s unsecured debts, they must pay off their priority debts in full. If they want to keep the collateral associated with their secured debts, filers must make payments through their plans. Any qualifying remaining debts may be discharged once the repayment plan is completed.
Meeting of the creditors
Like other bankruptcy options, Chapter 13 cases require a meeting of the creditors. During this meeting, people are put under oath and their trustee and creditors may question them. They may be asked to explain details of their financial affairs and the proposed terms of their repayment plan. The trustee and creditors may seek to resolve any issues they have at this time.
After the meeting of the creditors, a hearing is held to confirm the repayment plan. The trustee and filer must attend, and any involved creditors may also choose to appear. At the confirmation hearing, the judge determines if the plan meets the legal standards and if it is feasible. If confirmed, the filer and creditors are bound to the plan, and the filer is expected to begin making payments.
Seeking legal assistance
Navigating the bankruptcy codes and legal system may be challenging for most people in Tennessee and elsewhere. Therefore, those whoa re struggling with debt may find it helpful to work with an attorney. A lawyer may guide them through the process, aiding them to understand their options and their obligations.