What is Chapter 13 or Wage Earner Bankruptcy?
Chapter 13 bankruptcy is a type of personal bankruptcy wherein you pay off your debts over a given period, usually after having some of it discharged. It is also called a wage earner bankruptcy because it is meant for debtors who have the means to pay, but need some time to reorganize their finances. Unlike a Chapter 7 or liquidation bankruptcy, a Chapter 13 bankruptcy allows you to settle your debt without putting your assets at risk. A Chapter 13 repayment plan can last three to five years, and payments are determined based on your income after necessities such as rent, mortgage, and utilities are deducted.
Filing Chapter 13 Bankruptcy
The first step in Chapter 13 bankruptcy filing is to make sure it’s the right chapter for you. A lawyer can give you basic Chapter 13 information and explain the rules, as well as help you do the means test to determine if you qualify. Look for a bankruptcy attorney who has considerable experience and charges a reasonable rate. Once you've confirmed that a wage earner bankruptcy is your best bet, you can fill out the forms and file it at your local bankruptcy court. Your bankruptcy lawyer can also help you create a repayment plan proposal, which you will need to include in your filing.
After the papers are in, an automatic stay is imposed on your creditors, meaning they can no longer solicit payments or contact you directly. A bankruptcy hearing will be held about a month after you filed your Chapter 13 bankruptcy. You and your attorney will talk to a bankruptcy trustee, who goes over your Chapter 13 information and proposed payment plan. Once an agreement has been reached between you and your creditors, the plan is in effect and you can start making payments. When you’ve made all the necessary payments, you will receive a notice certifying your discharge from the debt.
Chapter 7 vs. Chapter 13 Bankruptcy
Chapter 13 differs from Chapter 7 in the way the debts are settled. Whereas a wage earner bankruptcy allows you to pay your debts off over time, a Chapter 7 bankruptcy involves selling off your assets and using the proceeds to cover the debt. Although you stand to lose valuable property under Chapter 7, the advantage is that the debts are immediately discharged. Chapter 7 is usually reserved for those who are really stretched out and have no other means to pay their creditors. Before settling for either chapter, make sure to read up on Chapter 7 and Chapter 13 information to see where you qualify.
Chapter 13 Bankruptcy Forms
Chapter 13 bankruptcy forms can be downloaded from the U.S. Courts website. The forms are divided into two parts: Part I for instructions, committee notes, and official forms, and Part II for procedural forms. Some Part II forms are only needed in certain cases. Your bankruptcy lawyer can help you identify the forms you need and other relevant Chapter 13 information.