How a Chapter 13 Bankruptcy Works
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A chapter 13 is specifically designed to help people get caught up on or payoff debts that are secured by some type of collateral like cars and mortgage, which are the most common examples. Under Chapter 13 bankruptcy, we will help set up a payment plan that will be at least 3 years and no more than 5 years to either catch up on debts, like mortgages, and payoff the debts, like automobiles—most likely at a lower interest rate than your current one. But you must have sufficient income to make the monthly Chapter 13 plan payments and your monthly household expenses.
The Advantages of Chapter 13
The biggest advantage to filing Chapter 13 bankruptcy is that you can be
behind on your secured debts like house notes and car notes. You can be behind
on these debts because Chapter 13 is designed to help people get caught up on
these types of debts. You keep the same house, keep the same cars, and life
continues as usual; except for the fact that bill collectors aren’t blowing up your
phone every evening.
The other advantage of Chapter 13 – debt collectors are not allowed to get in
contact with you during the entire protection period afforded you by Chapter 13
protection. Again, this period can last anywhere from 3-5 years. Now don’t get me
wrong, you’ll still be paying off your debts, but with an extended repayment
schedule and no harassment, 99% of the stress goes out the window.
How to Qualify for Chapter 13
Qualification for Chapter 13 is simple: you must be able to demonstrate that
you can afford your Chapter 13 plan payment and your monthly household
expense as discussed above, and you must have less than $360,475 in unsecured
debts and less than $1,081,400 in secured debts.
Paperwork and Documents You Need to File Bankruptcy
Once you begin to consider bankruptcy as a real option, it’s time to start gathering together the necessary paperwork and documents. I can help you get these sorted out, but in the interests of preparedness here are some of the items you will most likely need. Keep in mind that the requirements can change over time, but at the time of writing, these are current requirements.
Pay stubs from the past 6 months
In order to take the means test, you will need to provide proof of your income for the past 6 months. This can be in the form of pay stubs or a print out from your job showing what your gross pay and deductions for each pay periods for the past 6 months. You will also need to provide a list of monthly expenses. Keep in mind that some expenses may not be paid monthly, such as auto insurance or homeowner association fees. If you have recurring expenses that occur bi-monthly, bi-annually (every 6 months), or annually, break those down to figure out what the monthly charge equals and use that figure.
The last 2 years of tax returns for both federal and state taxes
This will act as further proof of your income for the bankruptcy court. The most recent tax returns will be submitted to the bankruptcy court.
You must provide credit reports from all three credit bureaus. I usually recommend www.annualcreditreport.com for my clients. That service allows you to receive a free credit report once a year. The purpose of the credit reports is to allow your bankruptcy attorney to list all your debts.
Bank statements for the past 3 months
If you have a checking or saving account, you must provide bank statements from all checking and savings accounts in order to help the court assess your financial situation. If you have not kept your bank statements, you can usually access them online, or ask the bank to reissue them to you.
Credit counseling report from an approved credit counselor agency
Under the 2005 bankruptcy reform law, bankruptcy filers are now required to go through credit counseling before they file. Once you complete the counseling, the agency in which you used to do the counseling will issue a certificate certifying that you complete the counseling for the bankruptcy court. The service is simple and easy.