To many people, total financial ruin comes to mind when an individual files for bankruptcy, but that is not usually the case, thanks to measures like the chapter 13 bankruptcy provision.
What is Bankruptcy?
Bankruptcy is a legal process involving a person or business unable to honor their debts to creditors. The provision may result in the liquidation of the person’s assets or the company assets to offset debts.
The bankruptcy process can be devastating, and usually, one requires the services of a bankruptcy attorney to handle the process. Federal courts oversee the bankruptcy process.
Types of Bankruptcy
The are several chapters under the bankruptcy code of the United States under which one can file.
- Chapter 7 bankruptcy – involves the liquidation of assets
- Chapter 11 Bankruptcy – Involves reorganization
- Chapter 13 bankruptcy – Involves repayment plans
What is chapter 13 bankruptcy?
A chapter 13 bankruptcy allows persons with a consistent income source to avoid asset liquidation and repay debts to creditors through a structured repayment plan.
The individual must develop a repayment plan for three to five years – the repayment period depends on the person’s monthly income relative to the state’s median income. Suppose the applicable monthly income is below the state’s median; in that case, the repayment period must not exceed three years. If it’s greater than the state’s median income, the person is allowed a period of up to 5 years for the repayment.
Creditors are to desist from starting or continuing collection efforts from the debtor during this period; this is by operation of law as soon as the petition is successfully filed.
Chapter 13 requirements
As chapter 13 is otherwise known as a wage earner’s plan, the first requirement is that the debtor must have a regular income source. other requirements include:
- Have unsecured debts less than $394,725 and secured debts less than $1,184,200.
- Must not have a dismissed bankruptcy petition 180 days before the bankruptcy petition.
- Have received credit counseling from an approved credit counseling agency within the last 180 days before the petition.
How chapter 13 bankruptcy works
The purpose of the chapter 13 bankruptcy provision is to avoid the liquidation of assets of a debtor who has a consistent source of income to pay if given a little more time. It is the usual resort when such a debtor wants to avoid losing their home.
As aforementioned, it comes with a strict repayment plan. The chapter 13 process begins with the filing of the bankruptcy petition in the bankruptcy court within the jurisdiction of the debtor.
Upon a successful filing of bankruptcy petition and approval by the court, a trustee is appointed for the case. The debtor on a regular basis ensures payment reaches the trustee for onward distribution to creditors.
Documents required for filing Chapter 13 bankruptcy
- schedules of assets and liabilities
- a schedule of current income and expenditures;
- a schedule of executory contracts and unexpired leases
- a statement of financial affairs.
- a certificate of credit counseling
- a copy of any debt repayment plan developed through credit counseling;
- evidence of payment from employers, if any, received 60 days before filing;
- a statement of monthly net income and any anticipated increase in income or expenses after filing
- a record of any interest in federal or state qualified education or tuition accounts.
- A copy of the tax return or transcripts for the most recent tax year and tax returns filed during the case.
Chapter 13 fees
To file a chapter 13 petition, the courts charge $235 as a filing fee and an amount of $75 as a miscellaneous administrative fee.
If the debtor cannot make payment in bulk, provision is made for payment to be made in a maximum of four installments. The final payment must be within 120 days from the day of filing.
Bankruptcy, Chapter 7 vs 13
Chapter 7 bankruptcy allows individuals and businesses to liquidate their assets to pay off unsecured loans. In contrast, a chapter 13 bankruptcy allows an individual with a consistent source of income to repay debts through a payment plan.
Ndc.org and Bankruptcy
The National Data Center (NDC.org) is an establishment that serves as an attachment to the National Association of Chapter 13 Trustees. It aims to develop an elaborate web-based central source for Chapter 13 case and claim data.
Ndc.org platform helps with the easy Tracking and management of debtor payments and trustee disbursements.
The NDC.org furnishes chapter 13 bankruptcy information to parties-in-interest through their platform. The website allows bankruptcy management through data consolidated from nearly 200 individual Bankruptcy Trustees into an exhaustive and secure database with a nightly update of information.
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