What is Chapter 13 Bankruptcy?
If you face lawsuits, garnishments and collection calls, you may be looking for a way out. Bankruptcy can help you address and get past financial issues so you can begin rebuilding creditworthiness.
Also called the Wage Earners bankruptcy, Chapter 13 allows individuals with a certain income level to keep their property and create a settlement plan to pay creditors. This option is for those who have a regular paycheck but cannot meet creditor demands for immediate payment.
Chapter 13 safeguards against foreclosures, repossession and often requests forgiveness of some debts. Chapter 13 (like Chapter 7) allows you keep your home and prevent foreclosure.
Benefits of Chapter 13
- Keep more non-exempt property than if you filed Chapter 7 – Including your house!
- Make up missed car or mortgage payments
- Creditors will not come after co-debtors as long as you make the bankruptcy plan payments
- Wipe out tax debt if it qualifies for discharge due to its age.
- Included back taxes in the payment plan
- Make up child support or alimony payments in the scheduled payment plan
What is the difference between Chapter 7 and Chapter 13 bankruptcy?
Despite having very different eligibility requirements, the goal of both Chapter 7 and Chapter 13 bankruptcy is to relieve the debt burden. Chapter 7 offers a fresh start by discharging most if not all of your unsecured debts. Chapter 7 is for individuals who pass the means test. If you make less than Florida’s median income, you will probably qualify.
However, if you have a steady paycheck but more debt than you can pay off comfortably, then Chapter 13 may be the right choice for you. Once your case is filed, then all creditor activity stops. You can work with us to develop a payment plan that allows you to pay off a negotiated amount to each creditor. The payment plan is usually for 5 years.
How do I qualify for Chapter 13 in Florida?
To be eligible for Chapter 13, you must be within the debt limits. For Florida residents, it’s approximately $419,000 of unsecured debt and $1,277,000 of secured debt. These amounts are current as of 2020 but may change in the future. Unsecured debts include:
- Medical bills
- Credit cards issued by banks (i.e., American Express, Discover, MasterCard, Visa)
- Personal loans
Secured debt is debt that is backed by collateral, such as an asset. Car loans and mortgages are the two most common examples of secured debt.
To qualify, you must undergo credit counseling within 180 days of filing, and you cannot have had a bankruptcy petition dismissed in the last six months. You’ll also need to submit proof of income within 14 days of filing. This demonstrates that you have the means to pay down the debt. Additional stipulations include being current in tax filings and submitting the previous four years’ tax returns.
What Happens when my Chapter 13 Bankruptcy is Paid Off?
If you make all scheduled payments, you’ll receive a discharge order that wipes out any remaining qualified debt*.
In general, you are not allowed to finish your Chapter 13 payment plan early, unless you pay the creditors in full (instead of the settlement amount). However, if you suffer a financial setback, you can request an early discharge due to hardship. This could be as a result of unemployment or a medical situation. Call us to learn more.
*NOTE: Alimony, child support, some taxes and fees are not considered qualified debt.