If your family is having problems dealing with the financial storms of life, such as unemployment or serious illness, you are not alone. Two-thirds of Americans have less than $1,000 in savings, and many of these people have no savings at all. As a result, these storms are often devastating. And, most banks have little patience when owners fall behind on things like mortgage or vehicle loans.

These pressures are especially acute since the Consumer Financial Protection Bureau recently scaled back some key consumer protections. So, bankruptcy might be your family’s only shelter from the storm. Now you need to know what qualifies you for Chapter 13 bankruptcy.

Bankruptcy offers financial relief, but this legal process is rather complex. An Athens bankruptcy lawyer offers solid advice from the very beginning, so you can make the best possible choices. Additionally, an attorney stands by you all the way. Bankruptcy petition preparers, who can only fill out forms, cannot offer these vital services.

Why Should I File Chapter 13 with an Athens Bankruptcy Lawyer?

If your family is experiencing severe financial distress, Chapter 13 bankruptcy offers short-term and long-term hope.

As soon as debtors file their voluntary petitions, the Automatic Stay usually kicks in. Section 362 of the Bankruptcy Code prohibits all forms of creditor adverse action, including:

 

• Foreclosure
• Wage garnishment
• Repossession
• Collection lawsuits and
• Harassing phone calls

Essentially, Chapter 13 gives families the breathing room they need to weather the immediate effects of financial storms.

The Automatic Stay usually remains in effect for up to five years. This protected repayment period gives families the time they need to erase secured debt delinquency on their own terms, rather than the “payment plans” moneylenders offer. So, if your bills are out of control, Chapter 13 puts you back in the driver’s seat.

Finally, in many cases, Chapter 13 makes your house, car, and other secured property more affordable in the long term. An Athens bankruptcy attorney can unlock options like cram downs and strip-offs which can save your family thousands of dollars.

Chapter 13 Bankruptcy vs. Chapter 7 Bankruptcy

Again, you should not decide which type of bankruptcy to file for based solely on what you’re reading here. Many factors can influence whether filing for one type of bankruptcy over another is a proper decision. An Athens bankruptcy lawyer can review your case and determine which option is ideal for your needs and goals.

That said, it’s worth being aware that filing for Chapter 7 bankruptcy is another option some consider when facing financial difficulties. With Chapter 7 bankruptcy, you’re able to eliminate certain debts by selling off your property to cover them.

In some cases, filing for Chapter 7 bankruptcy helps a family keep their home because reducing or eliminating debt makes paying off their mortgage easier. On the other hand, if a family has significant equity in a home, their bankruptcy trustee may decide to sell it to cover debts. Typically, those who choose to file for Chapter 7 bankruptcy do so because they do not earn enough money to pay off their debts via other means.

Chapter 13 bankruptcy tends to be ideal for those who earn a regular income. It involves gathering certain debts into a single pool and paying them off over the course of three to five years.

Once more, the type of bankruptcy that’s right for one family may not be the same as the type that’s right for others. You need to work with an attorney to determine the best course of action for you and your loved ones.

Additionally, not everyone qualifies for certain types of bankruptcy. You’re less likely to waste time and money filing for a type of bankruptcy you don’t qualify for if you discuss these matters with an expert.

Formal Qualifications

To qualify for Chapter 13, all filers must complete a debt counseling course within 180 days before filing for bankruptcy. This course, which is usually available online, typically takes only a few minutes and costs only a few dollars. Later, before the judge closes the bankruptcy, filers must complete a budgeting course.

During the counseling course, a debt management plan may be developed. When this happens, it’s typically required to be filed with the court along with all the other filing documents.

There are some exceptions to these requirements. In some instances, a court may determine that an emergency situation has sufficiently prevented someone from being able to complete a necessary counseling course in time to file for Chapter 13 bankruptcy. A bankruptcy trustee may also determine that there are no agencies in the area where a person lives that can provide such a course. That said, because these courses are available online, this scenario is fairly rare.

You will not qualify for Chapter 13 bankruptcy if during the 180 period before filing a bankruptcy petition was dismissed. This may have happened if you failed to appear at a scheduled court date or you otherwise failed to comply with the orders of the court. 

Additionally, most debtors must pay a filing fee. The Chapter 13 filing fee, which varies slightly in different jurisdictions, is usually about $350. Some judges allow some debtors to pay the filing fee in installments. Sometimes, the judge even waives the filing fee.

Finally, Chapter 13 debtors must have less than $1.2 million in total secured debt and less than $480,000 in total unsecured debt. These high debt limits are normally not a problem for Athens bankruptcy lawyers. Just be aware that these amounts are sometimes adjusted due to changes in the consumer price index. The numbers here may not be accurate in the future. Speak with an attorney to learn more about any changes to the requirements. 

Secured Debt vs. Unsecured Debt

Determining whether you qualify for Chapter 13 bankruptcy requires understanding the difference between secured debt and unsecured debt.

Secured debt is debt you owe when you’ve put up collateral. For example, when you take out a mortgage with a bank to purchase a home, you’re essentially using your home to secure the debt you now owe. If you fail to make mortgage payments, the bank can repossess your home.

Unsecured debt involves no such collateral. Examples of unsecured debt include credit cards and many types of personal loans. If you’re not sure whether some of your debts qualify as secured or unsecured, an Athens bankruptcy attorney can help you better understand the difference.

A Note on Qualifying for Chapter 13 Bankruptcy if You’re Self-Employed

Again, Chapter 13 bankruptcy is usually best for people who have a reasonably consistent income that will allow them to pay off their debts within five years under their bankruptcy debt repayment plan. Thus, some people wonder if they qualify for Chapter 13 bankruptcy because they are self-employed.

It’s not uncommon for self-employed peoples’ income to be somewhat inconsistent. If you work with clients directly, the amount of money you make one month can be different from what you make the next month. This may theoretically interfere with your ability to make the necessary payments.

However, in general, being self-employed does not automatically disqualify someone from being eligible for Chapter 13 bankruptcy. Still, if your income is not consistent, you must consider this when deciding which type of bankruptcy is right for you and your family. Discuss the matter in greater detail with a bankruptcy attorney to learn more about your options.

Informal Qualifications

The filing fee varies in different jurisdictions, and the informal qualifications vary in different jurisdictions as well. Since these rules are unwritten, only the best Athens bankruptcy attorneys are familiar with them.

As mentioned, Chapter 13 debtors have up to five years to erase secured debt delinquency. That requires a monthly debt consolidation payment. The trustee (person who oversees the bankruptcy for the judge) distributes this payment, which is based on the debtor’s disposable income amount, to creditors according to a set formula.

Therefore, the debtor must have sufficient disposable income to make this payment. So, the debtor must have a monthly surplus, usually based on the information provided in Schedules I and J.

It is usually not easy to make this payment. Many families must eliminate most entertainment expenses. Eating out at nice restaurants is usually out of the question as well. This budget tightness helps families develop the financial discipline they need to quickly rebuild their credit scores after they emerge from bankruptcy.

Preparing to File for Chapter 13 Bankruptcy

One of the “qualifications” for Chapter 13 bankruptcy is providing the court with certain information and documentation when you file. Again, a lawyer can help you gather everything you need, simplifying what may otherwise be a stressful process.

You’ll generally need to provide the court with a list of all your creditors and the amount that you owe them. You may also have to describe the nature of their claims.

Additionally, you will need to provide documentation of your income, its amount, and its source or sources. This can be challenging if you’re self-employed and thus don’t necessarily earn a consistent wage. Coordinate with your attorney to ensure you’ve gathered all the documentation the court will require of you.

Along with information about your income and debts, you’ll also need to supply the court with a list of all your property, and you will have to put together a thorough list of your monthly expenses. This may involve shelter, food, transportation, and similar expenses. The court must account for your expenses to determine a monthly payment that you’ll be able to afford while also repaying your creditors back within a reasonable timeframe.

Qualifying for Chapter 13 Bankruptcy: Mistakes to Avoid

When filing for any form of bankruptcy, do not make the mistake of attempting to protect property by transferring ownership of it to someone else. Although this is a measure you may be more inclined to take if you were filing for Chapter 7 bankruptcy, in any case, it will not yield the results you wish. It could actually result in you being found guilty of bankruptcy fraud.

Another common mistake some debtors make involves repaying certain creditors before others, then filing for Chapter 13 bankruptcy. For example, you might owe money to a family member who formally loaned it to you. Understandably, if you have the means to, you might feel inclined to repay them first before filing for bankruptcy, either by paying them in cash or transferring property to them.

Don’t do this. Bankruptcy laws are designed to ensure all your creditors are treated equally. The percentage you must repay your family members is the same that you would have to, for instance, pay a credit card company during your bankruptcy repayment period.

Bankruptcy trustees and courts know debtors are often more likely to repay their family members before filing for bankruptcy to repay their other creditors. Thus, they very closely scrutinize all transactions. If it’s discovered that you paid a family member before filing for bankruptcy, a bankruptcy trustee could sue your family to collect the money and evenly distribute it among your other creditors. 

There are, in fact, various mistakes you should avoid making before filing for Chapter 13 bankruptcy. For instance, sometimes people go on big spending sprees using credit right before filing for bankruptcy, hoping that they’ll be able to discharge the debt and avoid paying back all they owe. This won’t work.

Making various mistakes before or after filing for Chapter 13 bankruptcy could result in you no longer qualifying for bankruptcy. Depending on the severity of the mistake, you may even face significant legal trouble. 

That said, many debtors don’t fully understand what they can and can’t do when filing for bankruptcy. This is one of many reasons you need to hire a qualified lawyer. Their advice can help you avoid making a potentially harmful error. A lawyer may also help if you’re accused of making a mistake you did not actually make.

Now that you know what qualifies you for Chapter 13 bankruptcy, if your family does not meet these formal or informal qualifications, alternatives are available. For example, an Athens bankruptcy lawyer can negotiate with creditors to obtain more favorable repayment terms. Chapter 7 bankruptcy, which has none of the aforementioned financial requirements, might be an option as well.

Contact Morgan & Morgan

Contact a bankruptcy lawyer from Morgan & Morgan to discuss if Chapter 13 bankruptcy in Athens is right for you. Morgan & Morgan serve all of Georgia with expertise in bankruptcy, disability, worker’s compensation, debt relief, wage garnishment and more.

Originally published on December 12, 2020 and updated on September 7, 2021.