Chapter 13 Lawyer: How Does Bankruptcy Chapter 13 Work?

Home / Chapter 13 Lawyer: How Does Bankruptcy Chapter 13 Work?
Chapter 13 bankruptcy may be ideal, but not everyone is eligible. If you qualify, here’s how to file Chapter 13 through your local bankruptcy attorney.

Do you need to file bankruptcy? This is always difficult, but you do have options.

One of the most common bankruptcy filings is Chapter 13, or the “Wage Earners’ Plan.” If you’re in debt but earn a regular income, this plan helps you pay off that debt.

Chapter 13 offers flexibility. Debtors choose a repayment plan to pay their creditors in three years. Depending on your monthly income, your repayment plan may be as long as five years.

Do you think you qualify for Chapter 13 bankruptcy? Read this guide and learn how to file with your local bankruptcy attorney.

How Chapter 13 Works

There are five types of bankruptcy filings. Chapter 13 is the second most common, right next to Chapter 7.

The reason why debtors prefer this type of filing is the focus on financial organization.

You first meet with a bankruptcy counselor, who helps you with the process. Then you file bankruptcy with a local bankruptcy attorney and you devise a repayment plan.

When you file Chapter 13 bankruptcy, you make monthly payments to the Trustee. They distribute the money to your creditors, relieving you of that debt.

Chapter 13 is one of the filings that can relieve you of certain kinds of debt, including credit card payments and medical bills. This is known as a discharge of debts.

Chapter 13 also helps repossession or foreclosure. However, Chapter 13 does not relieve you of child support, unpaid taxes or student loan payments.

Do You Qualify?

Before you file or seek out a local bankruptcy attorney, you should know if you qualify to file for Chapter 13 bankruptcy.

Here are some basic qualifications:

Businesses Entities

If you own a business or a sole proprietorship, although your business doesn’t qualify, you as an individual might. Speak with your local bankruptcy attorney to plan how to best balance your business and personal goals. Other non-qualifiers include stockbrokers and commodity brokers.

Independent contractors and self-employed individuals do qualify, as long as your payments don’t go through a self-owned limited liability corporation (LLC). But like a traditional employee, you must prove your income, taxes, and other expenses.

Unemployment & Proof of Income

Unemployed individuals can’t file under Chapter 13. The reason is the repayment plan. To qualify for Chapter 13, you must show proof of income and create a repayment plan to last a few years. If you’re unemployed, the courts assume you won’t be able to pay off debts or will miss payments.

However, you can qualify if you have some type of income. This income doesn’t have to be from an employer or client. Examples include:

  • Pension income
  • Social security
  • Unemployment compensation
  • Royalties
  • Proceeds and rent from property sale

As long as you prove you receive some type of income, the courts accept you can pay off your debt.

Tax Filing

You need to prove you pay taxes and the amount you pay or paid. If you’re in debt due to taxes, you must provide the exact amount of taxes you owe.

To prove your taxes, you must submit your state and federal tax returns from the past four years. If you don’t provide tax documentation, your filing will either be delayed or dismissed.

Prior Bankruptcy

Have you already filed for Chapter 13 or Chapter 7 bankruptcy? You may not qualify to file again unless you filed for Chapter 13 bankruptcy more than two years ago or for Chapter 7 bankruptcy more than four years ago.

Credit Counseling

Within 180 days before you file, you must meet with a credit counselor.

You must submit a certification as proof you did. This includes any debt management plan the counselor creates. You either submit this documentation when you file or within 15 days afterward.

Minimum Debt

There’s a limit regarding how much debt you need to qualify to file a Chapter 13 bankruptcy.

Your unsecured debt must be less than $394,725, or your secured debt must be less than $1,184,200. Keep in mind, debt is adjusted every three years due to inflation.

How to File a Chapter 13 Bankruptcy

For starters, you must file with your local bankruptcy attorney. You must file within the area you currently reside.

When you choose your attorney, you have to pay fees such as a $235 filing fee and a $75 administrative fee.

When you file with your attorney, here’s the required information:

  • Schedules of assets and liabilities
  • Current income and expenditures (can include employer payments or monthly net income)
  • Executory contracts and unexpired leases
  • Statement of financial affairs
  • List of all property
  • Living expenses
  • Taxes, such as your last federal tax return or any unpaid taxes

How to Find a Local Bankruptcy Attorney

To reduce the risk of your bankruptcy being rejected, work with a great attorney. Filing for bankruptcy is stressful and difficult. Your attorney can help you understand the process.

But how do you find a great attorney? And how do you know their level of expertise? This takes some research, but you’ll be able to find a reputable attorney who will guide you through the process.

Follow this advice:

  • Look for an attorney who specializes in bankruptcy
  • Search reviews of different law firms
  • Contact your state bar association
  • Ask your local bankruptcy court
  • Check the National Association of Consumer Bankruptcy Attorneys (NACBA)

An attorney isn’t cheap. But one is required for you to file for bankruptcy. They will use their expertise to choose the best repayment plan and should always available to help you.

Do You Need to Consult with a Bankruptcy Attorney?

Filing for bankruptcy is difficult.

But with the right help, you can move past your financial struggles and start a new life. Chapter 13 bankruptcy lets you keep your assets while you devise a repayment plan unique to your needs.

The first step in debt relief is to find a reputable local bankruptcy attorney.

If you’re in Nebraska, Call (402)415-2525 for a consultation.

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