People can be eligible for Chapter 13 bankruptcy if their credit or non-priority (credit card, bills, etc.) is less than $419,275 and priority or secured (house, car, or any property up to) is less than $1,257,850. These amounts are reviewed every three years, according to the consumer price index and the current amounts have been set to $ 510 per quarter and $2045 per annum, and will persist until the end of the year. Chapter 13 actually applies only to individuals exclusively or the married couple in particular who files together. It is important to note here that only individuals who are considered debtors are allowed to file for Chapter 13 and not business entities. In this case they have to file under either Chapter 11 bankruptcy or Chapter 7.

Potential debtors must also show that they have filed returns for income taxes at both the state and the federal level for the preceding four years for them to be allowed to file for Chapter 13. If within 180 days of the filing it, any prior Chapter 13 petition or a petition was discredited as a result of noncompliance with the court summons or the order of the court or if it was a creditors’ discharge petition then you cannot file chapter or indeed any chapter under the bankruptcy law.

Before a filer can file for Chapter 13, he or she must first obtain a credit counseling certificate with an EOUST-approved credit counseling agency such as In Charge Debt Solutions, within 180 days of filing. The EAOUST stands for Executive Office for United States Trustees that was established for administering the bankruptcy laws of the United States. Emergencies or where the U. S. Trustee (or bankruptcy administrator) has deemed that there are not enough approved agencies to provide the proper counseling are the only exceptions. Indeed in required credit counseling if a debt management plan is worked out, this shall be submitted to the court.

Chapter 13 Advantages:

  • Chapter 13 is exactly the debt consolidation loan, where a debtor pays a certain amount of money to the court representative on regular basis and he will divide this amount to the creditors.
  • Creditors are prohibited to reach out to you directly and have to deal with the trustee instead.
  • There are certain rights it gives, such as the rights to keep your property and get a grace period for paying out debts.
  • If you have failed to pay your mortgage and soon face foreclosure then Chapter 13 repayment plan helps you shell out for the missed and future payments and retain your home.
  • Other types of loans that you cannot modify and stretch over the Chapter 13 repayment plan duration include car loans, but not the mortgage on your primary residence. This can reduce the monthly payment which in turn is useful in give various implications as indicated in section 3. For instance, if, for the next 2 years you are in a position to make monthly payments on the car loan, it may be agreed that you be given an additional year to repay the outstanding amount in order to reduce the monthly amount you pay.
  • Chapter 13 protection also have extraordinary provision that shields co-signers to consumer debt. The creditor cannot look towards the co-signer for repayment on a consumer debt, and a consumer debt is any credit that is being procured primarily for consumer purposes, such as personal, family, or household use.

Chapter 13 Disadvantages:

  • These four stages might take up to five years to be implemented. It normally takes 4-6 months when filing a chapter 7 bankruptcy discharge.
  • Bankruptcy damages credit, and Chapter 13 is reportable for the next seven years. It causes slightly less damage than a Chapter 7 judgment does, which is filed to remain for ten years.
  • This means all the cash will be used for paying rent and utilities or other bills and debts for the next 3-5 years at least, and you may not get credit easily.
  • Although filing for a Chapter 13 has some benefits, it becomes really complicated to file for a Chapter 7 in future. There are some important facts, which you cannot afford to ignore for instance you cannot file for Chapter 7 bankruptcy under any circumstance, if you have been involved in Chapter 13 bankruptcy in the last six years.

The Bottom Line

If you are facing financial problems and you need to find a way to change your life, perhaps Chapter 13 can be the answer. Seek consultation from a qualified bankruptcy lawyer and explore your chances of seeking for free legal assistance.