Staying on top of your finances can be a challenge, particularly in turbulent economic times. If you're struggling to meet your obligations, such as paying your mortgage or other types of debt, you might consider Chapter 13 bankruptcy. This is a long-term process and can protect your assets, although it won't immediately wipe out all your debt. A great bankruptcy lawyer can let you know whether this process would be a good fit for you.
In most cases, it is appropriate for people who have a steady income and are able to pay down a portion of their outstanding debt. You should consider it if you'd like to hold onto your assets and get back to normal as quickly as possible. Today, let's have a look at what this type of bankruptcy entails and how you can get started.
What Is a Chapter 13 Bankruptcy? Also called the wage earner's bankruptcy, this process is only open to individuals who have a steady income. People considering it are usually in financial difficulty because they have more debt than they can comfortably sustain. You might have missed mortgage or car payments, defaulted on your credit cards, or accrued too much personal debt you now don't know how to get out of.
Unlike a Chapter 7 bankruptcy, your debt won't be completely wiped out, and you'll be expected to make some monthly payments for a length of time, usually 3-5 years. However, these will be significantly reduced to a manageable level, so you'll have less trouble meeting your obligations, and you can then start afresh once you have paid them off.
What Debts Can It Wipe Out?
Many different types of debts can be reduced and eventually eliminated with this kind of process, and they include the most common ones such as a mortgage or a car loan. Your lawyer will help you to restructure such obligations into a realistic repayment plan, and you will then be able to slowly reduce the amount you owe. Once you have successfully completed your plan, the rest of your debts will be discharged, and you can start afresh with your life.
In addition to secured debts, you can also get help with credit card debt, personal loans, medical bills, debt as a result of a personal injury lawsuit, and utility bills. Some financial obligations, such as retirement account loans and certain fines you owe to the government, can only be discharged with this kind of bankruptcy. If they are your main debts, a Chapter 7 won't help and you'll have to go for a Chapter 13.
What Debts Can It Not Wipe Out?
When thinking about bankruptcy, keep in mind that you won't completely get rid of all your debt if you opt for Chapter 13 because you'll likely need to repay a portion for the next few years. What's more, there are a few types of financial obligations that won't be included. For example, priority debts such as certain kinds of tax, alimony, and child support will still need to be paid in full.
Who Should Get This Type of Bankruptcy?
No matter what your individual situation is, Chapter 13 bankruptcy is a hard process. If you opt for it, you will have to repay a part of your debts for the next 3-5 years. Before proceeding, your bankruptcy lawyer will speak to you about your current expenses and how you expect to pay for them. For instance, you will still have to come up with your current mortgage and car payments, even while you get rid of your debt.
To qualify for Chapter 13, you cannot have more than $419,275 of unsecured debt and $1,257,850 of secured debt. What's more, you have to demonstrate that your disposable income is higher than your current outgoings, as you will use it to pay down your debt over time. If this is not the case, you will have to look for alternative options.
People Whose Income Is Higher
Those filing for bankruptcy on a lower income will usually opt for Chapter 7 bankruptcy because it's an easier and cleaner new start. During this process, your debt is wiped out, and you can begin to build up from scratch. However, there are some disadvantages because you're likely to lose valuable assets as they are repossessed, and the bankruptcy will affect your credit score for many years to come.
A wage earner's bankruptcy is more challenging, but if you have the means, you'll be better off because you get to keep your assets. Since you're able to partially meet your obligations, you won't lose your home or car, and you can start your new life with your possessions. Additionally, people on a high income often don't pass the means test and therefore don't qualify for Chapter 7, which leaves them with fewer options and makes Chapter 13 more appealing.
People Intent on Keeping Their Home
As mentioned, you will get to keep your home, car, and other assets when you choose Chapter 13. The process is quite flexible, so if you have property you no longer need, you can give it up voluntarily. That way, your debt will be wiped out, and you will have one less thing you need to keep up with. However, if you'd rather hang on to your possessions, you won't be obligated to sell them, and by meeting your payments every month, you can keep them safe.
People Who Want to Protect Their Financial Interests
Wage earner's bankruptcy is often considered a long-term solution that is much better for your financial future than Chapter 7. This is because it will usually get wiped off your credit score around 7 years after the event, whereas Chapter 7 stays on your file for around 10 years. As a result, you can regain your financial footing faster and possibly even purchase new assets in the future.
1-3 years after your bankruptcy, you might already be eligible for credit cards again, although you'll have to pay a higher interest rate than before. Many lenders will also consider you for a mortgage, particularly if you met all your requirements and have improved your situation since your bankruptcy. This isn't usually the case with Chapter 7, which affects your life more permanently.
Finding a Great Bankruptcy Lawyer
Now that you know what to expect from a wage earner's bankruptcy, you might wonder whether you're eligible. The best person to ask is your local bankruptcy attorney, who has experience with many different situations and will know the best way forward. Before committing to a law firm, have a look at their website to see if they are reputable and experienced.
You can also read through the testimonials from previous clients, which can reveal a lot about the process of working with a given lawyer. Once you're satisfied that they could be a good fit, you can book your initial consultation to discuss your situation.
Chapter 13 bankruptcy is a great option for many people, including those with unmanageable debt but a higher income and those who are intent on keeping their assets intact. Get in touch with us now at Thomas Kerns McKnight in Santa Ana, CA to discover whether you're eligible and if so, how you can begin the process. One of our highly experienced attorneys will be happy to meet with you for your initial consultation.