Creditors’ Payment Process In a Chapter 13 Bankruptcy Repayment Plan
Bankruptcy is a powerful tool that can effectively help individuals who are struggling with overwhelming amounts of debt. There are multiple approaches and types of bankruptcy that are available, with specific qualifications as well as advantages and disadvantages that should be discussed with your bankruptcy attorney before you file.
The two most common types of bankruptcy are Chapter 7 and Chapter 13. In Chapter 7, a bankruptcy trustee will be assigned to your case and given the authority to liquidate some of your assets in order to pay off your creditors; any remaining debt will be discharged. Hawaii law recognizes strict protections and regulations for Chapter 7 bankruptcy.
Chapter 13 bankruptcy is another approach to bankruptcy that essentially restructures your debt. You will work with your attorney and the court to develop a 3-5 year payment plan, in which you will make monthly payments toward your debts. At the end of the period, the balance of your debts will be discharged. With a Chapter 13 bankruptcy, your assets and possessions are protected. For many individuals and families, a Chapter 13 bankruptcy provides a solid option for debt relief.
How Are Debts Handled In Chapter 13 Bankruptcy?
Under Chapter 13, you must file a plan to repay your creditors all or part of the money that you owe them, using your future earnings. The period allowed by the court to repay your debts may be 3 years or 5 years, depending upon your income and other factors. The amount you pay each month will depend on your income and your debts. The goal of the plan is to pay off as much debt as possible, but you may not be able to pay off all of your debt.
Here is a general overview of what happens to your debts in Chapter 13 bankruptcy:
- Secured debts: Secured debts are debts that are backed by collateral, such as a car or a home. In Chapter 13 bankruptcy, you must keep paying your secured debts, but you may be able to modify the terms of your loan, such as extending the repayment period or lowering the interest rate.
- Unsecured debts: Unsecured debts are debts that are not backed by collateral. In Chapter 13 bankruptcy, you will be required to pay a portion of your unsecured debts. The amount that you pay will depend on your disposable income and the amount of debt you have.
- Priority debts: Priority debts are debts that have a higher priority than other debts, such as child support, alimony, and taxes. In Chapter 13 bankruptcy, priority debts must be paid in full before any other debts.
Once you have completed your repayment plan, any remaining debts that are not discharged will be forgiven. However, there are some debts that cannot be discharged in Chapter 13 bankruptcy, such as student loans, child support, and alimony.
If you are struggling with debt, Chapter 13 bankruptcy can be a helpful option. However, it is important to speak with an attorney to discuss your specific situation before you file.
What Is The Process Of Filing For Chapter 13 Bankruptcy?
Before diving into the specific steps of filing for Chapter 13 bankruptcy in Maui, it’s important to understand the overarching goal and the factors involved. Bankruptcy is a legal process designed to help individuals and businesses restructure or eliminate their debt under the protection of the federal bankruptcy court.
Specifically, Chapter 13 bankruptcy, often referred to as a wage earner’s plan, allows debtors to develop a strategy to repay all or part of their debts over a specified period. While the process might seem overwhelming at first glance, breaking it down step-by-step can help clarify its complexities.
Here’s a comprehensive breakdown of what you can expect when filing for Chapter 13 bankruptcy in Maui:
Preparing & Filing Your Petition
The first step of Chapter 13 bankruptcy is to determine your qualifications and file a petition for bankruptcy. Individuals must meet specific eligibility requirements, which include having a consistent source of income and debt within certain limits. At this time, the debt limit for Chapter 13 bankruptcy in Hawaii is $2,750,000. Individuals who file must complete credit counseling and include their debt management plan from credit counseling along with their petition.
Filing for bankruptcy can be complicated. Many people do not realize that the timing of their petition is also crucial. Before you file for bankruptcy, always consult with an experienced bankruptcy attorney who can help you ensure that bankruptcy is the best path for you, handle the details of your petition, and guide you through the process to promote a good outcome.
Calculating Your Income
The repayment plan that is developed in your Chapter 13 bankruptcy will be based on your disposable income. This refers to the income that is earned after considering necessary expenses, such as mortgage or rent, utilities, food, and basic costs of living. This will help the court and bankruptcy trustee determine how much you can contribute toward your payment plan each month.
Creating a Repayment Plan
Once your disposable income amount has been reported to the court, your bankruptcy trustee will develop a repayment plan based on your income and debt obligations. If your income is below the medium income in your state, the payment plan will last for the next three years with monthly payments. If your income is above this threshold, your payment plan will last for the next five years. Your bankruptcy attorney can provide representation to ensure that your rights are protected and that your plan is feasible for your situation.
Once the trustee has approved your plan, a confirmation hearing will be scheduled with the court in which the plan will be reviewed to ensure it meets U.S. Bankruptcy Code requirements. Yourbankruptcy lawyer can attend this hearing with you to provide advice and representation. You and your attorney have the ability to object to the plan during the hearing and initiate adjustments, if necessary. Once the plan has been approved, you will begin to make payments according to the plan terms.
Following approval by the court, you will begin making payments to the bankruptcy trustee as outlined in your plan. The trustee will distribute your payments to your creditors. It’s essential that your payments are made on time. If any payments are late or missed, your entire bankruptcy could be dismissed, and you’ll also need to pay interest and penalties on your missed payments. Occasionally, the plan will need to be modified throughout the repayment process, such as if you get a new job or have a change to your income or circumstances. Any modifications must be approved by the court.
Completion Of Your Payments
Once you’ve completed all plans as agreed upon, any remaining debts that can be discharged will be discharged. This means you’ll no longer be obligated to make payments and no longer owe on the debts. Student loans, back taxes, and child support payments are a few examples of debts that cannot be discharged in bankruptcy.
Rebuilding Your Credit
Following your bankruptcy, you’ll likely want to work to rebuild your credit, which can enable you to purchase a home, take out a loan, and improve your financial health overall. Your credit repair lawyers can be an invaluable resource to help you regain your financial health and stability following bankruptcy.
Schedule a Free Consultation With Hawaii’s Top Rated Chapter 13 Bankruptcy Lawyers!
Success with Chapter 13 bankruptcy often requires the legal advice of an experienced bankruptcy lawyer who understands the process and can help you use it to your best advantage. If you’re ready for financial stability and a fresh start, contact the trusted attorneys at Blake Goodman, PC, Attorney for your free consultation. We have guided thousands of individuals through the bankruptcy process and are ready to help you, too! Contact us to learn more about your options and to get started with relief from overwhelming debt!