The bankruptcy process is a scary experience. You are in a position wherein you are unable to pay off your debts and you need a bankruptcy court to help you with it. The court will help decide how you will pay off the debt based on your financial capabilities.
Of all the debt solutions, this process will be placed in the public records and will ruin your credit score like crazy. Your score will plummet by 200 points.
But if there is nothing that you can do about it because your finances are really in a tough spot, then you just have to go through the painful process of declaring yourself bankrupt.
How will you qualify for a Chapter 7 or Chapter 13 bankruptcy?
In a previous article, we discussed the Chapter 7 bankruptcy process. This is a type of bankruptcy that is preferred by a lot of Americans because it ends quickly and will discharge a lot of their debts. Of course, before the discharge will happen, consumers will have to watch as their properties and assets are all taken from them. These will be liquidated by the bankruptcy court and the proceeds will be distributed to the creditors. Any lender or creditor that is not paid will be forced to forgive all the balances because the court will discharge them all.
This is not the same case for a Chapter 13 bankruptcy process. Before you can file, you will have to go through a means test. While every case is different, you will usually qualify for a Chapter 7 bankruptcy when you do not have a job or you are earning below the median income in the state where you file your case. That means you have no way to pay off your debts. If your salary is above the median but your debts are just way too high for you to pay off, then the chances of your landing a Chapter 7 bankruptcy is still there. But if your income is above the average median in the state and you are deemed to be able to pay a portion of your debts, then you will be qualified to file a Chapter 13 bankruptcy case.
According to the statistics released by the USCourts.gov, the Chapter 13 bankruptcy filing fell from 355,081 to 329,256 from 2013 to 2014 (12 month period ending in March). While the decline may seem like good news, it is still a high number of consumers going through the bankruptcy process.
A Chapter 13 bankruptcy is when you will go through a repayment process. Unlike the Chapter 7 bankruptcy, you will have to pay a portion of what you owe. How much and what percentage will depend on the bankruptcy court. The good news is, your assets will not be touched and liquidated. You get to keep them. The bad news is, you have to spend the next few months or years still paying your debts. This time, it is hard to get out of it because it is backed by the court.
The repayment scheme is what makes other consumers confused between bankruptcy and debt settlement. Both involves paying a portion of the debt and whatever is not paid will be forgiven or discharged by the creditor or lender.
What is the Chapter 13 bankruptcy procedure
So if you will go through the Chapter 13 bankruptcy process, what are the things that you have to expect? If you will go through personal bankruptcy, you need to know the details before you proceed.
- Set a meeting with your lawyer. Just like in Chapter 7, you will have to start by consulting with a legal professional. There are a lot of bankruptcy lawyers out there – some more expensive than others. The most common place to go to for a list of bankruptcy lawyers is through the NACBA.org or the National Association of Consumer Bankruptcy Attorneys. Meet up with your chosen lawyer and bring along details about your debt and financial situation.
- Take the means test. Your lawyer will help determine if you will qualify for Chapter 7 or 13 bankruptcy. This way, you will both know if you are following the right bankruptcy process or not.
- Go through a credit counseling course. It is mandatory for anyone filing a bankruptcy case to enroll in a credit counseling course. This is to review if their only way out of debt is through bankruptcy. This should be done within 6 months prior to the filing.
- Prepare the documents for filing. The benefit of a bankruptcy attorney is they know the documents that need to be prepared. They can give you a list and you can prepare them immediately to expedite the process. The documents include your income stubs, credit card debt list (billing statements, etc), bank statements, titles, loan documents etc. These documents are referred to as the schedules. Make sure they are both accurate and prepared on time.
- File the petition, schedules and payment plan. Since this is the “repayment bankruptcy,” you need to include the payment plan in your filing. This will be submitted by your lawyer to the court. The date of filing will be the reference of the court when describing actions and events as pre-petition or post-petition.
- Make the first payment. This is typically due on the first 30 days since the case is filed. The payments will be due every 30 days after that.
- Prepare the most recent tax return. This should be provided to the Chapter 13 trustee 7 days before the 341 Meeting.
- 341 Meeting. This is more commonly known as the Meeting of Creditors. This usually happens a month after the filing of the case. This is attended by representatives of the creditors you owe money from. It usually lasts ten to fifteen minutes only.
- Wait for the deadline of exemptions. After the Meeting of Creditors, the trustee has 30 days to object to any of your claims of exemptions.
- Payment plan confirmation. This is a hearing wherein the Chapter 13 payment plan will be confirmed. This usually happens after the Meeting of Creditors.
- Deadline of claims from creditors. 90 days after the first date of the 341 Meeting, creditors that to file their respective proof of claims. For government creditors, this deadline is 180 days. The trustee and your lawyer will review these claims. Any claims that will be objected upon will be scheduled a hearing.
- Finish financial management course. This is separate from the credit counseling course. The certificate of completion will be submitted before any debt will be discharged by the court.
- Deadline of dischargeability. This is 60 days after the Meeting of Creditors. The creditors will have to file a complaint to object the debt discharge that you filed.
- Submit certificate of domestic support obligation. If applicable, you have to submit a certificate that proves you are current with any domestic support obligations that are due while the Chapter 13 bankruptcy process is happening. This includes child support, alimony, etc.
- Discharge of debtor. This happens fast when there is no challenge to file the discharge. It will be longer if there is.
The bankruptcy process that is discussed here is general in nature. You need to consult a bankruptcy lawyer to understand the specific laws and regulations in the state that you decided to file in.