How Does Chapter 13 Bankruptcy Work?
If you’re behind on all your bills, including your mortgage, and just need more time to catch up, asking a debt lawyer about Chapter 13 bankruptcy may be your best option.
Reducing and Reorganizing Your Debt
Unlike Chapter 7 bankruptcy, which wipes out your debt (as well as your assets), Chapter 13 reduces and reorganizes your debt over a certain time frame (usually over 5 years). This way, you get to keep your house, car, and other assets, while paying your debt down over time. Some mortgage modification plans include Chapter 13.
There are many steps to declaring Chapter 13 bankruptcy in New York, as well as an epic amount of paperwork. Some steps in the process include:
- Credit Counselling
- Creating a Debt Repayment Plan
- Dealing with the Bankruptcy Court
- Attend Debtor Education Class
This is mandatory for anyone declaring Chapter 13 bankruptcy. You will need to meet with a credit counselor to review what debts you have, how you got them, and how you may be able to get them under control. Your credit counselor will help you to start creating your Debt Repayment Plan. Click here to learn more about credit counseling – https://www.justice.gov/ust/frequently-asked-questions-faqs-credit-counseling#agencies
Debt Repayment Plans
This lists all your debts (how much you own to who) and whether they are priority debts (alimony, child support, taxes), secured debts (mortgages, car loans), or unsecured debt (medical bills, credit cards, personal loans). You’ll also need to list all your income (salary, investments) and expenses (utilities, groceries, tuition).
With all this information, you, your credit counselor, and your debt attorney will create a five-year* budget and payment plan that must be agreed by everyone involved (you, the court, and your debtors).
*If the reason you are in trouble is COVID related, you may be able to add two additional years to your plan.
There is a LOT of paperwork involved in Chapter 13 bankruptcy proceedings. This includes a bankruptcy petition, your debt repayment plan, copies of your tax returns, and many, many other documents.
Once all your documents are filed, the court will appoint you a bankruptcy trustee who will be in charge of your budget and repayment schedule throughout the process. Click here to learn more about trustees – https://www.justice.gov/ust
Your trustee will also set up a meeting with your creditors to discuss your repayment plan. Your creditors will have to sign off on any loan modification plans you and your debt attorney come up with.
Finally, there is a confirmation hearing where it will be determined if the court will allow your bankruptcy case to proceed.
Debtor Education Class
At the end of your five-year repayment plan, you will need to take another class. This two-hour class covers how NOT to get into this much debt again. Topics include making budgets, saving money, how not to use credit cards, etc… This class is a mandatory part of the process.
Other Things to Know
This was just a brief overview of the Chapter 13 Bankruptcy process. There is a lot more information to learn https://www.ny-bankruptcy.com/services/bankruptcy-solutions/bankruptcy-chapter-13/
A Chapter 13 reorganization is an involved and potentially lengthy bankruptcy case and requires special knowledge and expertise. If you’d like to talk directly to a compassionate, knowledgeable, human being, reach out to New York debt attorney Ronald D. Weiss, P.C. for a free consultation. He can tell you whether Chapter 13 bankruptcy is right for you, and help you get the process started. Call 631-271-3737 and take the first step to a fresh start.
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