Filing for bankruptcy under Chapter 13 can give you the relief you need. Chapter 13 won’t erase your debts immediately, but it will buy you some time, shield you from creditors, and establish a schedule of lower monthly payments to get you back on track.
If you need to file for bankruptcy in Massachusetts, attorney and counselor at law Logan A. Weinkauf P.C., can help. We handle every type of bankruptcy case, including Chapter 7, Chapter 11, Subchapter V, and Chapter 13. Contact Logan A. Weinkauf P.C. today for the help you need.
What Is Chapter 13 Bankruptcy?
Chapter 13 is a type of bankruptcy for debtors with a regular income, which is why it is also known as a wage earner’s bankruptcy plan. Unlike Chapter 7, which involves liquidating assets, or Chapter 11, which reorganizes business debts, Chapter 13 adjusts individual debt without forcing you to sell off any assets.
Chapter 13 Compared to Other Forms of Bankruptcy
Which form of bankruptcy you file for depends on the type and amount of debt as well as your income.
A Chapter 7 bankruptcy is for people whose monthly income is lower than their state’s median income or businesses that need to liquidate assets. If you apply for a Chapter 7 bankruptcy, the court will check your household income, compare it to the median income for other households of the same size, and determine whether you qualify. Chapter 7 is sometimes called a “liquidation bankruptcy” because your assets are liquidated to discharge your debts. Not every asset must be liquidated, as some are exempt.
A Chapter 11 bankruptcy is for businesses that want to remain open but need to reorganize their debts. Chapter 11 allows the business to continue to do business while making payments to creditors. Subchapter V is a streamlined form of Chapter 11 for small businesses.
A Chapter 13 bankruptcy is for individual debtors with a regular income sufficient to pay off at least part of their debt. By filing for Chapter 13, you can obtain protection from creditors, reduce your monthly payments, and protect your property from liquidation.
Benefits of Chapter 13 Bankruptcy
A Chapter 13 bankruptcy offers several benefits:
- Protecting your home from foreclosure
- Protecting your other assets
- Consolidating debt
- Establishing manageable monthly payments
- Finishing in three to five years
- Less damaging to your credit than Chapter 7
- Protecting co-signers
You’re shielded from creditors during a Chapter 13 bankruptcy. United States Bankruptcy Law does not allow creditors to make any collection efforts while you are going through Chapter 13. The bank cannot foreclose on your home or seize your other assets.
A Chapter 7 bankruptcy can force you to sell off assets in exchange for discharging your debts. If you don’t want to lose your home or your other property and if you have sufficient income, Chapter 13 is your best choice.
A Chapter 13 bankruptcy will reorganize your debts so that you make one affordable monthly payment to the trustee appointed by the court, and the trustee will then make payments to your creditors. This has the effect of consolidating your debt and reducing your payments.
Depending on your income, you will pay for three or five years. The court will discharge any remaining debt at the end of that time. Because you continue to make payments on your debts for three to five years under Chapter 13, this form of bankruptcy doesn’t damage your credit as much as Chapter 7.
If you have a co-signer for consumer debt, Chapter 13 may also offer them some protection. Creditors cannot garnish their wages or otherwise try to collect the debt from them while you are in Chapter 13.
There are also some downsides to Chapter 13. Consider these carefully before you file:
- To qualify for Chapter 13, you must have a regular source of income.
- You will have to pay back some or all of your debts.
- The bankruptcy will appear on your credit report for seven years, making it harder to do anything requiring a credit check.
- All disposable income must go toward your debts while going through Chapter 13, so you will have to watch what you’re spending carefully for three to five years.
If you decide not to file for bankruptcy, you have other options. You could seek a debt consolidation loan to have one lower payment rather than multiple payments to different creditors. You could ask a credit counselor to help you draw up a debt management plan and a budget you can stick to. However, a Chapter 13 bankruptcy consolidates your debts and can also feature a debt management plan created with the help of a credit counselor.
Do I Qualify for Chapter 13 Bankruptcy?
To qualify for Chapter 13 under U.S. Bankruptcy law, you must:
- Have no more than $1,861,150 in secured and unsecured debt as of the filing date
- Have taken an approved credit counseling course within 180 days
- Have no bankruptcies dismissed for failure to appear in court or follow court orders in the past 180 days
- Have no bankruptcies dismissed in the past 180 days because your creditors filed a petition with the court to recover property on which they held a lien
In addition, your unsecured debt must total no more than $465,275, and your secured debt must be no more than $1,395,875. Unsecured debts are debts with no collateral, and secured debts are debts with collateral.
Bankruptcy can discharge an unsecured debt but not a secured debt. However, filing for Chapter 13 can reduce your monthly payments on secured and unsecured debt. You must pay at least as much to the creditors on your unsecured debt as you would have paid in a Chapter 7 bankruptcy.
If you’ve gone through a Chapter 7 or 11 bankruptcy discharge in the previous four years or a Chapter 13 discharge in the previous two, you cannot file for Chapter 13.
Finally, whatever repayment plan you submit to the court must show that all your disposable income will go toward paying off your debt.
If your debt is too high for Chapter 13, you may still qualify to file for Chapter 11. Talk to your bankruptcy lawyer to find out which type of bankruptcy you qualify for.
Qualifying for Chapter 13 does not necessarily mean that all your debts will qualify for discharge. Some debts are dischargeable, and some are not. Dischargeable debts include:
- Medical bills
- Credit cards
- Unsecured personal loans
- Utility bills
- Some tax debts
Debts that are not dischargeable in bankruptcy include:
- Student loans
- Alimony
- Child support
- Mortgage debt
- Fines and restitution for criminal charges
- Debts for personal injury after a DUI
If you are behind on your alimony or child support payments or if you have past due federal taxes, those can be included in your Chapter 13 payment plan. However, before your Chapter 13 discharge can be granted, you must be caught up on alimony and child support payments and have regularly filed taxes for the past four years.
How Long Is the Chapter 13 Process?
The Chapter 13 bankruptcy process can take three or five years, depending on your income. If your monthly income is lower than the median income for your state, the court will put you on a three-year repayment plan, although in exceptional cases, the court may change this to five years. If your income equals or exceeds the median income, then the court will put you on a five-year repayment plan.
You should expect to start making payments to the trustee immediately. Your first payment is due within 30 days, even if the bankruptcy court hasn’t officially approved your repayment plan yet. Once you’ve figured out how much you think you can pay every month, immediately set that amount aside to send to the trustee.
How Much Does It Cost to File for Chapter 13 Bankruptcy in Massachusetts?
The filing fee is $235, and the court fee is $75. You can file for bankruptcy without hiring a lawyer, but bankruptcy is complicated. A lawyer can help you with many details that might otherwise be overwhelming and can help protect you from making any mistakes that might get your bankruptcy case dismissed.
Your lawyer will advise you about the cost of the bankruptcy. Usually, there is an initial upfront payment which varies by client, and then the remaining balance is paid through the bankruptcy repayment plan. This arrangement makes it possible for you to afford skilled legal representation even if you are underwater financially.
What Should I Do Before Filing for Bankruptcy?
Before filing for bankruptcy, you should organize all your bills so that you have a clear picture of what you owe, your monthly payments, and your income. This will make it much easier for you to explain your situation to a lawyer and to the bankruptcy court. Your creditors will have the opportunity to ask you questions during the Chapter 13 process, so organizing all your financial information ahead of time is also an excellent way to get ready for this conversation.
There are also some things you should not do before filing for bankruptcy:
- Don’t use up your retirement savings to pay your debt.
- Don’t use credit to make unnecessary purchases you can’t afford.
- Don’t forget to file your tax returns.
Money you’ve saved up for retirement will be protected in bankruptcy, so it’s not a good idea to use up your retirement savings to pay your debt. You’d only be causing yourself financial trouble in the future to get out of trouble today.
If you make an unnecessary purchase just a few months before filing for bankruptcy, your creditor may argue that you never intended to pay them back, which would be a case of fraud. You definitely don’t want to be accused of fraud while you are trying to file for bankruptcy.
If you don’t file your tax returns, you may not be eligible to file for Chapter 13 because one of the qualifications for Chapter 13 is that you must have filed all your tax returns for the past four years. For this reason, it’s especially important to file your taxes if you even suspect you might need to file for bankruptcy.
The Steps of Chapter 13 Bankruptcy
When you make the decision to file for bankruptcy, you are beginning a process that will take three to five years to complete. Chapter 13 bankruptcy is a long and somewhat intricate process, which you must complete step by step. Think of it as a checklist. Once you’ve completed every item on this list, you will be done with Chapter 13 and ready to move on with your life.
Credit Counseling
The first step in a Chapter 13 bankruptcy is to complete a credit counseling course from an approved credit counseling agency. You must complete this course within 180 days of your filing date, so if you’re thinking of filing for bankruptcy within the next six months, you should go ahead and complete the course. Credit counseling is required regardless of which type of bankruptcy you have decided to file for.
The United States Trustee Program provides a list of approved courses but does not vouch for their quality. If you’re filing jointly with your spouse, you can both take the same credit counseling course. Credit counseling courses are not free. However, if you cannot afford to pay for credit counseling, you may be entitled to a fee waiver or a reduced fee on the course.
A typical credit counseling session should last approximately 60 minutes, but this can vary depending on the specifics of your case. The credit counselor will try to determine what led to your current financial situation and how you can avoid the same problem in the future but will not advise you on whether to file for bankruptcy or not. Some credit counseling courses will include a debt management plan.
Consult a Bankruptcy Lawyer
After you’ve taken your credit counseling course, the next step is to consult a lawyer with extensive experience in bankruptcy court. A bankruptcy lawyer can help with every aspect of the process:
- Deciding which type of bankruptcy is right for you
- Filling out the long and complex bankruptcy petition form for you
- Preparing a proposed repayment plan
- Meeting deadlines
- Appearing in court as your legal representative
- Sending your pay stubs, bank statements, and tax returns to the trustee
Although you can complete these steps yourself, the chances of making a mistake are much lower if you use a skilled bankruptcy lawyer rather than trying to do it all on your own. For instance, the form to file for bankruptcy is more than 50 pages long and is not easy to understand without legal training.
If you choose to fill it out yourself, you risk making an error that will come back to haunt you later. According to the United States Bankruptcy Court for the District of Massachusetts, “It is strongly recommended that a person considering bankruptcy consult with a competent bankruptcy attorney prior to filing a case,” as a mistake can result in the dismissal of your bankruptcy.
Working with a bankruptcy lawyer can also reduce your stress. That’s a serious consideration when you are going through an experience like bankruptcy. Rather than poring over all your paperwork and trying to make sense of it yourself, it’s much easier to just hand it all over to someone who knows what they are doing and let them handle it for you.
When you’re looking for a bankruptcy lawyer, choose one who is both experienced and a good listener. You need a lawyer who focuses on bankruptcy cases and who has worked extensively on every type of bankruptcy. During your initial consultation, ask the lawyer whether they have ever worked on a case like yours. No two cases are exactly alike, but you want a lawyer who is familiar with all the legal issues that could affect your case.
You also want an empathetic lawyer who can listen without inappropriate judgment. During your interview, assess whether you feel comfortable sharing the intimate details of your life with this lawyer. In a bankruptcy, all of your spending will be examined, so your lawyer should be someone you can trust.
File Your Bankruptcy Petition
Protection from creditors is probably one of the primary reasons to file for bankruptcy. Filing your petition triggers an automatic stay, meaning that creditors are no longer allowed to call you, send you demands for payment, or engage in any other collection actions.
You can file the petition on your own or jointly with your spouse. However, you must include all your spouse’s financial information even if you file for bankruptcy on your own because your spouse’s income is still considered part of your household income.
Along with the petition, you must include your tax returns and a complete schedule of assets and debts. You will also need to pay the filing fee of $235 and the court fee of $75 unless your lawyer is covering that for you in exchange for later payment. If you’re paying these fees yourself and you can’t afford them, the court will allow you to pay installments.
If you’re preparing the bankruptcy petition yourself, take care to avoid mistakes and list everything accurately and completely. If you leave anything out of your list of assets and debts, it could become a problem for you later.
Appointing a Trustee
After you send in your bankruptcy petition, the court will appoint a trustee and send you a letter telling you who your trustee is and how to contact them. The trustee’s job is to oversee the bankruptcy process and make sure everything is done correctly.
The trustee is responsible for ensuring that your creditors receive everything they’re entitled to under U.S. bankruptcy law, so you shouldn’t think of them as someone who is on your side. However, if your creditors file any improper claims or demands for payment, the trustee should object and demand proper documentation.
You may hear from the trustee before the meeting with creditors, or you may not. If you do hear from the trustee right away, it will probably be to set up your first payment, which is due within thirty days of filing. The trustee will keep your payments in trust until the bankruptcy court formally approves your repayment plan.
Throughout the Chapter 13 process, you will deal with the trustee much more often than the bankruptcy court. You’ll make all your payments to the trustee, who will then pass them on to your creditors after deducting a portion as a fee.
The trustee is also responsible for verifying any information in your bankruptcy petition. That means they’ll examine your petition closely, compare all the numbers, and check all the facts. If there is any discrepancy in your petition, the trustee may contact you before the meeting with creditors to ask you about it. If the trustee doesn’t contact you ahead of time about the discrepancy, then they will question you about it at the meeting with creditors.
Submitting a Repayment Plan
You can submit your repayment plan along with your bankruptcy petition or within 14 days from the filing date. The main requirement for your repayment plan is feasibility, meaning that the plan presents a plausible way for you to meet your obligations under Chapter 13 at your current income.
When you submit your proposed repayment plan, the trustee will review it and let you know if there are any problems. The trustee is responsible for telling the bankruptcy court whether they consider your proposed repayment plan feasible.
Your creditors have the right to object to your repayment plan or raise questions about it at the meeting, so be ready to answer any questions about your income and expenses. You may have to explain why you cannot afford to pay more than the proposed amount as your monthly payment. If the trustee doesn’t believe your plan is feasible, you may have to agree to a higher payment to get your bankruptcy approved by the court.
If you don’t have a repayment plan ready to submit with your bankruptcy petition, ask your attorney for assistance determining a feasible monthly payment that will meet the requirements of U.S. bankruptcy law.
Meeting with Creditors
After you’ve submitted your petition and repayment plan and had a trustee appointed by the court, you will attend the meeting with creditors. This meeting will happen about 40 days after you file. The bankruptcy judge will not attend this meeting.
You may hear this meeting described as a “341 meeting.” According to the United States Bankruptcy Court for the District of Massachusetts, the meeting with creditors is also known as a 341 meeting because these meetings are discussed in Section 341 of the U.S. Bankruptcy Code.
Your creditors may or may not attend the meeting. They’ll be informed about the meeting and given the option to attend, but it’s up to them whether to attend it. You won’t have the same option, though. If you fail to attend the meeting with creditors, the court can dismiss your bankruptcy petition.
The trustee will oversee the meeting, at which both the creditors and the trustee can ask you questions. You will answer these questions under oath, so answer every question truthfully.
You should bring a photo ID and your Social Security card to the meeting with creditors. The trustee will ask to see both.
Confirmation Hearing with the Court
You’ll attend a confirmation hearing at the U.S. Bankruptcy Court between 50 and 75 days after filing your petition. The court will review your petition and proposed repayment plan and decide whether to approve them.
If the court denies your bankruptcy petition, you have four options:
- File a new repayment plan
- File a Motion for Reconsideration
- File a Motion for Appeal
- File for a different type of bankruptcy within 14 days
- Dismiss your bankruptcy
If the court approves your plan, you don’t need to do anything else except make your payments until you’re near the end of the process.
Make Recurring Payments
After the court approves your bankruptcy petition and repayment plan, you’ll continue making payments to the trustee. Until you complete the Chapter 13 process, you will have to live with certain restrictions:
- All your disposable income must go toward repayments, so you’ll have to keep to a strict budget.
- You can’t take on any additional debt without the trustee’s approval.
- You must keep up with the repayment plan and any payments for child support, alimony, or taxes. The court can force you into a Chapter 7 bankruptcy or simply dismiss your case if you miss any of these payments.
If your financial situation changes and you realize that you’ll have trouble making your payments, talk to your trustee right away.
Finishing of Payments and the End of the Case
Once you’ve made all the payments on your repayment plan, you’ll be almost ready to finish Chapter 13 and come out of bankruptcy. However, there’s one more class you have to complete first. This one is a debtor education course, and like the financial counseling course, the U.S. Trustee Program maintains a list of approved providers.
After you’ve made all your payments and taken your debtor education course, the court will discharge your remaining dischargeable debts, and you will officially be done with Chapter 13.
What You Should Expect After Chapter 13 Bankruptcy
Completing a Chapter 13 bankruptcy means getting a fresh start, but that doesn’t mean everything will be the same as it was before. Your credit score will drop by up to 200 points, and the bankruptcy will appear on your credit report for seven years.
That’s the bad news. The good news is that the bankruptcy won’t stay on your credit report for ten years the way it would with a Chapter 7 bankruptcy. In addition, creditors may view your bankruptcy in a less harmful light because you paid off at least part of your debt.
For a few years after completing a bankruptcy, you might find it challenging to get a home or car loan. The more time goes by after your bankruptcy, the less difficulty you will have. If you keep up with all your bills, your credit score will improve. After seven years, the bankruptcy will disappear from your credit report.
Tips to Help Recover from Chapter 13 Bankruptcy
Recovering from a Chapter 13 bankruptcy takes time and financial self-discipline, but you can help yourself by following these tips:
- Apply for a secured credit card to demonstrate responsible spending and repayment habits.
- Monitor your credit score and deal with any adverse reports immediately.
- Follow the same strict budgeting habits you had to follow while in bankruptcy.
Filing for Chapter 13 will never help your credit, but you can recover financially after bankruptcy. You just have to stay focused on maintaining healthy spending habits and rebuilding your credit score over time.
Logan A. Weinkauf P.C. Can Help
If you’re overwhelmed by bills and under siege by creditors in Massachusetts, Logan A. Weinkauf P.C. can help. We have already helped many other people in situations much like yours.
Serving New Bedford, Brockton, Fall River, and Mashpee, Massachusetts, Logan A. Weinkauf P.C. is committed to helping every client get a fresh start. We will sit down with you, closely examine your financial situation, and devise a repayment plan that you can manage without losing your assets.
It’s challenging to accept that your debts have become overwhelming and that you may have to file for bankruptcy. We understand how emotional that can be for many of our clients. Still, the sooner you make the decision to get on the road to financial recovery, the easier it will be.
Contact Logan A. Weinkauf P.C. to get started today.
