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Chapter 13 bankruptcy explained

Chapter 13 has often been referred to as a wage earner’s bankruptcy plan, because those who file must earn a regular income and be able to prove to the court that they can repay some or all of their debts.

Unlike Chapter 7, which can eliminate credit card bills, unpaid medical accounts, outstanding utility balances, and other unsecured debts, Chapter 13 does not erase debt. Instead, it gives you the opportunity to rearrange your finances and pay off as much of your existing debt as possible over a three-to-five year period.

As long as you meet the following criteria, you will likely be deemed eligible to file Chapter 13 bankruptcy in New York:

  • Your income meets a certain threshold
  • You owe no more than $383,175 in unsecured debt and $1,149,525 in secured debt
  • You are not a stockbroker or commodity broker

After you file Chapter 13, the court issues an automatic stay that protects you from further creditor actions. Creditors cannot sue you, repossess your vehicle, garnish your wages, or even call you about the debts. Your lender cannot even foreclose on your home as long as the terms of the repayment plan are adhered to.

Chapter 13 benefits

Although Chapter 7 eliminates most debt and is over with in a matter of months, a lot of people still opt for Chapter 13 for reasons like the following:

  • Unlike Chapter 7, no property can be seized to repay creditors
  • While debts are not eliminated, they can be reduced under a court-approved payment plan
  • There is more time to pay debts that cannot be discharged, such as taxes and child support arrears
  • Any co-signers to your debt cannot be approached by creditors, as filing Chapter 13 stays collection efforts against them also
  • Individual classes of creditors can be established, with each one getting a different payment percentage, allowing those debts incurred with another party to be treated differently

Preparing to file

To file Chapter 13, a debtor must collect the following information for the courts:

  • The names and addresses of all creditors and the amount owed to each one
  • Schedules for income and expenses, assets and liabilities, and unexpired leases and executory contracts
  • A statement about the debtor’s financial affairs

All of this information is used to determine the best repayment plan given your financial circumstances.

The Chapter 13 repayment plan

An approved repayment plan itemizes the debts owed and how much will be paid for each one. Debts are paid in a specified order, with priority obligations such as back child support being paid first and ultimately paid in full. Next, in order of importance, are secured debts, such as car loans and mortgages. After that, any remainder can be distributed among unsecured debts.

If you complete your repayment plan obligations, then your case will be discharged, provided you attended an approved budget counseling course and kept up your child support or spousal maintenance obligations.

If you are experiencing financial difficulties and need assistance (and extra time) to repay your debts, then  a New York Chapter 13 attorney can help you stop collection efforts against you and obtain the breathing room necessary to improve your financial future.

 

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