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7 Things to Know About Chapter 13 Bankruptcy

1. It Can Solve a Variety of Issues

By the time you file for bankruptcy, you may be facing serious issues such as regular telephone calls from your bill collectors and creditors, or impending foreclosure action. Many people in such a situation are falling further and further behind on their payments, whether they are mortgages, car loans, or credit cards, and don't see a way out. In addition, creditors may file a lawsuit against you, or garnish your bank accounts and wages. 

In such a situation, bankruptcy can offer instant relief. Chapter 13 can stop a foreclosure and can prevent these harassing phone calls from happening. You and your lawyer will come up with a plan of how you can pay down your debts in a way that works for you, and once you've fulfilled the court-ordered repayment plan, the rest of your obligations will be discharged.

2. Reorganization Bankruptcy Allows You to Keep Your Assets

One of the main benefits of Chapter 13 is that you get to keep your property despite filing for bankruptcy. Any secured assets, including your home and your car, won't be seized as long as you can keep up with the repayment plan. After several years, this plan will end and the rest of your debt is written off so that your property is yours to keep. 

Compared to Chapter 7 bankruptcy, this option is less of a clean start because your debt isn't immediately wiped out, but it does not put you at risk of losing your valuable assets. This type of bankruptcy is also quite flexible, as you can voluntarily give up a piece of property if you can no longer keep up with the payments, but you are not obliged to do so.

3. Only Individuals Can File

While Chapter 7 is open to both individuals and businesses, Chapter 13 is meant for individual people only. In fact, it is sometimes called wage earner's bankruptcy, as it is a good solution for anyone who is earning a steady wage and able to make regular payments. In order to take advantage of this option, you will need to speak to the judge and trustee about your issues and what got you into this situation, and how you plan to make your regular payments. 

But rest assured that they have seen and heard much worse, so there's no need to worry about this. Simply speak about your situation honestly and clearly, stating both why this happened to you and what you can do to prevent it in the future. A competent and experienced lawyer can help you to remain calm during this part of the proceedings and figure out the best way to lay out your story. 

4. There Are Certain Restrictions

Despite the fact that this is a great option for many, there are certain restrictions on who can file for Chapter 13. As of 2021, you are not allowed to have more than $419,275 of unsecured debt or $1,257,850 of secured debt at the time of filing for bankruptcy. You must have a disposable income larger than your current basic necessities, such as shelter, food, and medical needs, and all of this extra money will go towards your payments. 

In addition, you must be current on your tax filings, and you won't be eligible in case you've filed for Chapter 7 in the past four years or Chapter 13 in the past two years. In case a bankruptcy petition was dismissed in the last 180 days, you will also be ineligible. In case any of these factors apply to you, your case is likely to be more complicated than most, so it's best to contact a professional ASAP to ensure you don't fall further behind on your payments.

5. It Is a Long-Term Solution 

If you're looking for a fresh start, Chapter 13 could be a great option, as it can allow you to repay the majority of your debt in a way that is manageable for you, and write off the rest of it. The process usually takes 3-5 years, and once you have fulfilled your repayment plan, you are free of your commitments. At that point, your debt will be gone, but remember that student loan debt and an obligation to pay alimony or child support can't be wiped out. 

6. Your Credit Score Isn't Affected for as Long

While a record of Chapter 7 bankruptcy can stay on your credit report for 10 years, Chapter 13 is usually erased after 7 years, so you can get back to normal sooner. This is because you were able to repay part of your debt with the help of your repayment plan, so you are considered less of a risk than someone who had all their debt written off. 

Although you will have to pay higher interest rates than before, you can also be considered for credit cards again in the future, as soon as 1-3 years after filing for bankruptcy. What's more, there is a chance that you can obtain another mortgage in the future because there are certain lenders willing to help people in this kind of situation. This is not the case with Chapter 7, and you'll be unlikely to ever get a credit card or mortgage again.

7. Hiring a Local Overland Park, KS Lawyer Is the Key to Success

Some people decide to file for bankruptcy on their own, but in the vast majority of cases, this is not a good idea. If your case gets dismissed because you missed a deadline or appointment, you won't be able to file again for 180 days, which might put you and your family at increased risk. Additionally, a competent attorney will have gone through this process many times and be able to advise you on the best course of action at each step. 

Your chosen lawyer will know the federal and local laws and can answer any question you have. They will help you to lay out your case in the most positive light possible, which will allow you to obtain a favorable outcome and come out of the process stronger than before. A local attorney can also help you to come up with a plan that you can stick to, so you can avoid future problems such as falling behind on your repayment plan.

If you are in a situation where you have trouble keeping up with your bills and are not seeing a way out, Chapter 13 bankruptcy could be the solution for you. While you will have to repay parts of your debt, you will be allowed to keep all of your assets and you may be able to borrow money again in the future. To speak about this option, call Stockton and Stern in Overland Park, KS today and set up an initial consultation with one of our dedicated attorneys.