Bankruptcy filings can be very different from one another, and Chapter 13 filings in particular are often confusing. Knowledge of legal issues is required, which is not always available to the public. One of the most frequent questions is what happens to the debt in Chapter 13 bankruptcy. To answer this and other questions, we have prepared a complete guide with all the information you need. If you have any further questions, you can contact Michael Brooks, who will skillfully advise you on this and other processes.
What to consider before filing for Chapter 13 bankruptcy
In general terms, a Chapter 13 bankruptcy includes a process of reconfiguring debts as a means of facilitating payment to creditors. This is a complex issue with long-term consequences. Therefore, it is necessary that the first step before declaring bankruptcy is to obtain financial and credit advice. From that moment, for 180 calendar days, a window is opened for the initial filing of the bankruptcy. Already in this instance, it is recommended that you have the representation of a lawyer to begin the process. In addition, a first payment of the charges for judicial and administrative presentation must be made.
Detailed creditor information must be included within the presentation. This involves their full names, amounts owed to date, and the nature of the claim giving rise to the debt. Any other relevant information about creditors may be required in order to figure out what happens to the debt in Chapter 13 bankruptcy. In addition, you will be asked for personal information about your own source of income. In particular, the amounts and the frequency with which you receive these payments, whether from a salary or from a private activity of any kind, are required.
It is also relevant in the presentation a list of all the assets that you own at the time of declaring bankruptcy. All creditable assets under your ownership must be declared at this time. Finally, the report must include the accounting details of your expenses. These include personal and family accommodation and food, maintenance, clothing and means of transport, taxes and public services that you usually pay. With all this information duly documented, the presentation is complete.
What happens to debt in Chapter 13 bankruptcy and creditors
A key point of filing for bankruptcy is that it forces creditors to cease any claim for payment. Justice suspends any collection that creditors may demand, and prevents them from taking judicial or seizure actions against the person in bankruptcy. Additionally, there should be no communication with creditors during the process. This means that there can be no telephone or verbal complaints. What happens to the debt in Chapter 13 bankruptcy is left to the courts.
This suspension of collections includes both debts taken for commercial purposes and those that pursue personal or family purposes. That is, any consumption or investment that has been made previously. On some occasions, even, a creditor may be forced to return a payment received after the bankruptcy filing, since they do not conform to the normal process. These funds become available to the set of creditors included in the initial list, which correspond to the bankruptcy process.
If I have a credit card, what happens to the debt in Chapter 13 bankruptcy?
Credit card debt is included in the total that makes up the personal debt of the person in bankruptcy. However, not all debts are computed in the same way or have the same hierarchy. There are 3 categories that serve to differentiate the type of debt. The first is the guaranteed debt, one that has equity guarantees that can be executed. The second category is the priority debt, which is placed as the main one within those that are not guaranteed, and has the priority of payment. Finally, there is the general unsecured debt, which is the lowest ranking among all.
Credit card debt falls into the last category, generally unsecured. This means that it is in the last place in the order of payment within all the debts. In general, these types of debts are not fully paid at the end of the bankruptcy process, although a part of them is paid. What happens to debt in Chapter 13 bankruptcy, particularly credit card debt, depends on the characteristics of the debtor, his or her assets, and court decisions.
How much will you pay in Chapter 13 bankruptcy
The amounts to be paid during the bankruptcy process may vary from person to person, depending on their income level and ability to pay. The relevant thing to determine how much will be paid is the disposable income, that is, the income obtained after deducting living expenses. From that amount, the priority is established for the guaranteed and priority debts. Then, the possible benefit of creditors is taken into account for unsecured debts. This is the same as calculating how much they could have collected if a Chapter 7 bankruptcy had been filed instead of Chapter 13. From this result, you get a possible figure of how much you would have to pay.
The payment plan has a duration stipulated by the Chapter 13 bankruptcy law that goes from 3 to 5 consecutive years. The variation within these terms corresponds to the debtor’s income level. If he has an income that is below the state median, the term is more likely to be 3 years. On the other hand, if the income is higher than the average, it is likely that a term of 5 years will be established. It is not possible to extend the term beyond the limits established by law. During this time, creditors are prevented from making claims, lawsuits, or garnishments, since what happens to the debt in Chapter 13 bankruptcy is left up to the judge.
What happens if a scheduled Chapter 13 bankruptcy payment is missed?
When there is an interruption in the payments stipulated by the Chapter 13 bankruptcy agreement, the court can rule against the debtor. In general, what happens is that the case becomes a liquidation of assets in accordance with the provisions of Chapter 7 bankruptcy. Something similar can happen in the event that the debtor does not make the corresponding payments for family support, or not present the tax payment documentation in a timely manner.
At the end of the term of the payment plan, the debtor has the right to request the finalization of the bankruptcy and the exemption of any unpaid debt to date, as long as it is within those included in the plan. For this, it must be reliably certified that the maintenance obligations were settled correctly, without any fault. In addition, they will be required to complete and pass a financial issues management course, to provide tools to avoid a new bankruptcy. If the resolution is favorable, the creditors will be prevented from carrying out any claim action for previous debt, which has already been treated in the Chapter 13 bankruptcy.
Chapter 13 bankruptcy: the best professional advice
Although it is not legally necessary to have an attorney to file a Chapter 13 bankruptcy, it is highly recommended. A specialist in this type of bankruptcy process can carefully analyze your case to confirm whether or not it is applicable to Chapter 13. He will also be able to answer all your questions about the process and your obligations, so as not to make any mistakes along the way. It is worth remembering that what happens to the debt in Chapter 13 bankruptcy can have important consequences for your future.
When you begin a bankruptcy proceeding, you will automatically be assigned a trustee or trustee to advise you on your case. However, he is an official who answers to the court, so he is not the best person to make recommendations for your benefit. Instead, a lawyer hired by yourself will be in charge of defending your interests and looking for the best alternatives in your bankruptcy process.
Bankruptcy attorneys like Michael Brooks have the experience of countless cases that are the guarantee you need to have a successful process. Knowledge of federal laws is essential in this type of resolution, so that there are no errors in the presentation that hinder the result. Defending your interests to achieve a payment plan that fits reality and is beneficial for your finances is a task that cannot be left in inexperienced or unqualified hands.
More than 30 years in the market and a success rate of 94% endorse Bankruptcy Now as the best lawyers to define your case. When in doubt about what happens to the debt in Chapter 13 bankruptcy, do not hesitate to count on Michael Brooks, bankruptcy attorney in Miami, to obtain the best legal and financial advice. The opportunity to get your finances in order and get a fresh start is at hand.