Compassionate Chapter 13 Bankruptcy Attorneys Serving Richmond, VA
How Chapter 13 Bankruptcy Can Help You Pay Off Debts
A Chapter 13 bankruptcy can really be a game changer in how you repay your debts. This type of bankruptcy allows you to adjust the repayment terms of your debts, protect your property, and get you off to the races on pursuing financial freedom.
Immediately upon filing, the automatic stay swings into effect, which is a shield that protects you from your creditors.
The automatic stay is extremely powerful in that it makes it a violation of federal law for your creditors to take any further action to collect debt from you.
A few examples of how the automatic stay provides you a forcefield of protection after filing a Chapter 13 bankruptcy are as follows:
- A creditor would be forced to stop a pending foreclosure.
- A creditor would not be permitted to repossess your vehicle, and if your vehicle was repossessed during the ten-day period before you file bankruptcy, the creditor would be required to return your vehicle to you.
- The IRS, the state, and any other taxing entities would not be able to move forward with a tax lien, garnishment of wages, or take money from your bank account for taxes you owe.
- Any pending garnishment would be stopped and funds taken before the garnishment return date would need to be returned to you.
- Any pending warrant in debt or other court action against you for unpaid debts would be stopped.
- Any pending utility disconnection would be stopped, and if your electric, gas, or water was disconnected prior to filing, the utility company would be required to reconnect your service.
- Your driver’s license could be reinstated if the suspension was solely the result of an unpaid debt, such as an unpaid administrative fee or a vehicle accident when you were uninsured.
- The county or city would remove the hold that prevented you from registering your vehicle due to unpaid personal property taxes and you would be able to move forward with registering your vehicle.
These are a few examples of the enormous power of the automatic stay and the broad range of protection that you would have after filing a Chapter 13 bankruptcy.
If you are facing any of those issues or if you are just tired of struggling with overwhelming debts, and you want to begin working toward financial elevation, Financial Freedom Legal can help.
Our holistic approach begins with a consultation and does not end until you’ve received sufficient financial advice and tools.
Chapter 13 Bankruptcy FAQ
How Does Chapter 13 Bankruptcy Work?
In Chapter 13 bankruptcy, your financial repayment plan will include one payment each month to cover your debts. Generally, this lasts between three to five years.
You are able to take care of a wide variety of debts through Chapter 13, such as:
- Mortgage arrears
- Rent arrears
- Vehicle loans
- Furniture loans
- Tax debts
- Credit cards
- Medical bills
- Personal loans
- Payday loans
- Cash advances
- Internet loans
- Utility bills
- Vehicle deficiencies (balances owed on vehicle loans when you no longer have the vehicle)
- Mortgage deficiencies (balances owed on a home loan when you no longer have the home)
- Student loan debts
- Child support arrears
- Spousal support arrears
- Unexpired contact and/or lease arrears.
All of these debts can be wrapped into one affordable monthly payment. These payments typically cost less than your original monthly payments.
Many people are surprised by how affordable the monthly payment can be and feel comforted after discovering what their Chapter 13 plan would look like. Don’t hesitate to consider this as a debt relief option.
How is Your Monthly Payment Amount Determined?
A few primary factors play a large role in determining your monthly chapter 13 plan payment.
The first important consideration is the value of property that you own. In a Chapter 13 bankruptcy, your property will be protected, so you do not have to be concerned about losing anything.
This is a benefit of Chapter 13 that is not always available in a Chapter 7 bankruptcy, in which your property could be in danger of being sold to repay your debts. In Chapter 13 you do not have that risk, but in order to keep your property, you must pay your creditors at least what they would have received if your property were liquidated in a Chapter 7 bankruptcy.
We know… that’s a mouthful. What it boils down to is figuring out whether your unsecured creditors would be entitled to receive any money if your property were sold in a hypothetical Chapter 7 bankruptcy.
If so, then your Chapter 13 plan needs to provide them with at least that amount.
How Income Impacts Your Debt Repayments
A second significant consideration in determining your Chapter 13 plan payment amount is your income.
Your household income for the six-month period prior to filing bankruptcy must be reviewed to determine whether your income is higher than the median income for your household size in your city or county.
If your income is higher than the median income for your household size, the court has developed a “means test.” This formula takes into account all of your income and expenses to determine what amount must be repaid to your creditors.
Financial Freedom Legal helps you review all of this during a free consultation. You can review your property, discuss your income, walk through this analysis step-by-step and discover what amount, if any, you may be required to repay your creditors.
What is Secured vs. Unsecured Debt?
The way your creditors would be treated in a Chapter 13 bankruptcy and the amount you have to pay them often depends on whether the debt you owe is secured or unsecured.
An “unsecured” debt is one that is not attached to any property that you own, such as a credit card debt, medical bill, or personal loan.
A “secured” debt, on the other hand, is one that is attached to some property that you own, such as a mortgage loan that is attached to your home, a vehicle loan that is attached to your car, or a furniture loan that is attached to your furniture.
It is often possible to pay less than what you owe on unsecured debts. It is also possible to pay less than what you owe on some secured debts.
For example, if you purchased your vehicle more than 910 days prior to filing bankruptcy, you may not need to repay the total amount owed on your vehicle loan in order to keep your vehicle. Instead, the repayment amount would be based on the value of your vehicle.
Similarly, if you purchased furniture more than one year prior to filing bankruptcy, the amount that would need to be repaid on your furniture loan would be based on the value of the furniture instead of the total amount of the loan.
At a free consultation, Financial Freedom Legal will evaluate your debts, explain which debts are secured and unsecured, and help to determine what amount, if any, has to be repaid on those debts.
What are the Benefits of Filing Chapter 13 Over Chapter 7?
Chapter 13 is like the deluxe package of bankruptcy options in that it just provides you with a lot more features and benefits than Chapter 7. It can help you protect property that could be in danger of being sold if you filed Chapter 7.
Even higher earners can utilize Chapter 13 bankruptcy.
You can use it to deal with a wider variety of debts than Chapter 7, such as:
- Mortgage arrears
- Vehicle loans
- Tax debts
- Child and spouse support arrears
- Rent arrears
- Student loans
Additionally, Chapter 13 can offer you protections that are not available under Chapter 7, such as:
- Saving your home from foreclosure
- Stopping vehicle repossession
- Preventing eviction
- Preventing a tax lien from being attached to your property
There are many instances in which filing a Chapter 13 bankruptcy is the more beneficial option, but it is important to talk through all of your options with an experienced bankruptcy attorney.
Making Full Debt Payments During Bankruptcy
Finally, certain types of debts have to be repaid in full through your Chapter 13 plan.
Some of these debts would be:
- Child support arrears
- Spousal support arrears
- Recent tax debts
Additionally, although there are some exceptions, most secured debts must be paid in full. That means, in order to keep your home or your car, your Chapter 13 plan will usually need to provide for the full amount of any mortgage arrears, vehicle loans, and other secured debts.
If you have these types of debts that need to be paid in full, they will impact the amount of your Chapter 13 plan payment regardless of how much money you make or the value of your property.
This is a lot to consider. But, you don’t have to battle this on your own.
Financial Freedom Legal will walk you through the process, calculate the means test, determine the amount you need to pay to your creditors, make sure that you fully understand all of your options, and get you on the road to financial recovery.
After contemplating using the service of Financial Freedom Legal, and consulting with Veronica I decided that my circumstances didn’t necessarily require going this particular route, but if I ever find myself going in that direction Veronica and Financial Freedom Legal will be the company that I will do business with.
Choosing Chapter 13 Bankruptcy As Your Financial Recovery Tool
There is a lot to consider when it comes to filing bankruptcy.
Schedule your free consultation today and let us help you determine if Chapter 13 may be the right option to fast track your journey to financial freedom. You can meet with us in Richmond, over the phone or virtually to start your bankruptcy process.
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