Your debts are overwhelming you, and a friend says, “You know, you can eliminate those debts and keep everything you have if you just reorganize and pay them to the best of your ability?” You’d probably listen and listen intently.
But then if your friend mentions the word “bankruptcy,” you may start to shudder, thinking to yourself: “No, bankruptcy means failure, and the court can seize my property and sell it.”
Your friend, however, is right if he or she is referring to Chapter 13 of the bankruptcy code. This type of bankruptcy often enables you to retain all of your property.
If you’re in this situation – debts overwhelming you and creditors on your case daily seeking payment – you should consider the Chapter 13 bankruptcy option. It may sound simple on the surface, but you need the help of an experienced bankruptcy attorney to help you navigate through the process and obtain the fresh start you’re seeking.
If you live in or around Bend or Hermiston, Oregon, or even in Portland or Eugene, contact me at Oregon Fresh Start. I’ve handled more than 11,000 cases for individuals seeking bankruptcy protection in my four-decades-plus career. I can help you prepare all the paperwork, fashion a reorganization and repayment plan that the court will approve, and then stand with you through the whole process.
Chapter 13 of the bankruptcy code is often called the “wage earner’s option.” To qualify for Chapter 13, you need to have a regular monthly income and enough disposable cash left after you pay your monthly living expenses to make a payment to creditors. It is also often referred to as the reorganization-repayment plan.
A central part of a Chapter 13 filing, after showing you have enough disposable income to make a monthly payment, is to create a plan to consolidate your obligations that will satisfy not only the bankruptcy court but also your creditors.
Shortly after you file for Chapter 13, the trustee assigned to your case will arrange a meeting of creditors which you must attend. The creditors might object to your plan, which could force you back to the drawing board or even into a Chapter 7 liquidation plan. For this reason, you definitely need the counsel and guidance of a skilled and experienced bankruptcy attorney.
The repayment plan can be either three to five years in length; though, during COVID, some cases were extended to seven years. During the repayment period, you will make a monthly payment to the bankruptcy trustee assigned to you, who will then pay creditors. You cannot skip payments or the court may dismiss your filing. If your income drops, you may be able to modify the monthly amount.
At the end of your three or five years of payments, you will be discharged from bankruptcy, and your dischargeable debts will be gone.
The first step in qualifying for a Chapter 13 repayment plan is to have a regular monthly income. Also, Chapter 13 is available only for individuals and families, not for businesses like partnerships or corporations (who must use Chapter 11). If you are a sole proprietor of a business, you may qualify for Chapter 13 protection.
The bankruptcy code also sets limits on the amount of debt you can incur to qualify for Chapter 13. The upper limit for unsecured debt is currently $394,725, and for secured debt, it is $1,184,200. So, if you own a home with a mortgage of $1.2 million, you cannot use Chapter 13, but Chapter 11 may be available. The same holds true if your credit card and personal loan obligations total, say, $400,000.
You also must complete an approved credit counseling course within 180 days before filing. You also cannot file for Chapter 13 if you’ve been discharged from a Chapter 7 filing within the past four years or from a Chapter 13 within the past two years.
You also must present current tax returns to the court before filing, and you must be up to date on your obligations. You will be required to submit your tax annually filings thereafter during the length of your repayment plan, and any refunds you receive must be turned over to the trustee.
A Chapter 13 cannot relieve you of your child or spousal support obligations, and those payments must be factored into the calculation of your disposable income. You also cannot discharge most student loan obligations. Taxes due are also largely not subject to discharge.
It also should be noted that, in order to keep your home and car, you will need to continue making regular monthly payments. If you are behind in payments, you can include the arrears amounts in your repayment plan, but then you must continue to meet your normal monthly obligation.
Though it’s technically possible to file for Chapter 13 on your own, it’s certainly not advised. The paperwork requirements and legal hoops will be taxing, to say the least. You can rely on me to assess your situation and come up with a repayment plan that will satisfy both the court and creditors. If you’re in or around Bend or Hermiston, or in Eugene or Portland, contact me immediately at Oregon Fresh Start.