While the task of filing for Chapter 13 bankruptcy may seem daunting, it is worth it to give you a chance to financially recover. Sometimes filing bankruptcy is the best option, and it is exponentially easier to navigate with the help of an expert.
Since filing for bankruptcy can be a complicated process, we recommend legal counsel from step one. It can save you from the stress of managing paperwork, repayment deadlines, and court hearings on your own. Rely on experience when it comes to your finances.
For reference, Chapter 13 bankruptcy is the process of establishing a repayment plan for your debt. Eligibility is based on your earnings, so you do have to qualify; it is important that the filing is beneficial to you. If you are unable to budget for debt repayment, then Chapter 13 may not be the right legal path for you.
Step-by-Step Guide to Filing Chapter 13 Bankruptcy
While not as comprehensive as meeting with counsel, this step-by-step guide to filing Chapter 13 bankruptcy can help you get started on the process. Expect to spend at least five years making payments after filing Chapter 13, and keep in mind it is an ongoing process to recover your financial situation.
Step 1: Organize Your Paperwork
Before filing Chapter 13 bankruptcy, you’ll need to organize all your financial documents. You should start with the following:
- Verified credit score document – This will have a compilation of most, but probably not all, your debts.
If applicable, gather additional documents that show outstanding debts, especially if they’re not included in your credit score.
- Medical bills
- Mortgage statements, and appraisals of any additional real estate
- Real estate tax bills
- Lease agreement (if renting)
- Car loan documents
- Four years of tax returns
- Six months’ worth of paystubs to show proof of income
- At least three months of bank statements
- Documentation of retirement or brokerage accounts
Ultimately, the goal is to have a paper trail that lays out your debt so you can move on to the next step with your bankruptcy lawyer.
Step 2: Organize Your Debt
Now that you physically have documentation of your debt, it’s time to organize it into categories. What type of debt do you have? Make a list and designate the bills to categories such as credit cards, medical, loans, etc….
The next step in organizing your debt is to label it secured or unsecured, and decide which debts take top priority. You will want to go through your documents and list your debts in descending order, with the most pressing debts at the top.
What is Secured Versus Unsecured Debt?
Secured debt is tied to physical collateral. If the debt goes unpaid, the borrower forfeits the loaned item, such as a home or car. Unsecured debt is not tied to physical property. Credit card debt, medical bills, and child support are some examples of unsecured debt.
Step 3: Property Inventory
Unlike Chapter 7 bankruptcy, Chapter 13 typically allows you to retain your assets, such as real estate. Because of this, you need to take inventory of your property and assess its value. In order to protect it, you need to have an accurate inventory and make appropriate payment amounts based on worth.
Step 4: Set Up a Budget
Since filing Chapter 13 means eventually working toward repaying past debt, you need to set up a budget. Even if you are unemployed, if you have any form of monetary increase, you may be eligible for Chapter 13. Working with your bankruptcy lawyer, you can determine your increase, whether it’s from employment income, government assistance, or even financial assistance from friends/family.
It is important to accurately assess your monthly income so your repayment plan is feasible. If it is determined you do not have enough monthly income to cover your living expenses in addition to a Chapter 13 repayment plan, you will not be found eligible to continue with the filing process.
Step 5: Begin Credit Counseling
Part of the Chapter 13 filing process is attending credit counseling. The course you attend must be approved by the Department of Justice, and is required before you file official Chapter 13 bankruptcy forms. There is a fee to attend, but some are eligible for a waiver.
This initial credit counseling course may take up to one hour, and most can be completed online or by telephone. Upon completion, be sure to keep the certificate with your other bankruptcy paperwork.
Step 6: File Bankruptcy Forms
After completing the credit counseling course, you are now able to fill out Chapter 13 bankruptcy forms and officially file them. These comprehensive forms detail all of your finances and are lengthy. Be sure to enlist the aid of your legal counsel so as not to waste time incorrectly filling out the paperwork. You will be submitting a rough draft of repayment plans, all of your earnings, expenses, and debts.
There is a filing fee for Chapter 13 bankruptcy, which needs to be paid directly to the court when you submit your paperwork. There is no way to avoid this fee when filing, so be prepared to pay at least $310–although you may be able to work out a payment plan if need be.
In addition to filing the Chapter 13 forms, you will need to include the financial records you previously organized, and the certificate that verifies you completed the initial credit counseling course.
Step 7: Bankruptcy Trustee
When you file Chapter 13 bankruptcy, you will be assigned an official to preside over your case. This individual is known as a bankruptcy trustee, and s/he will need copies of all your bankruptcy forms as well. In addition to the $310 filing fee, there may be additional fees collected by the trustee.
The job of the trustee is to ensure all your paperwork is accurate before your Chapter 13 case is presented in a meeting of your creditors.
Step 8: Creditors Meeting
The next step in filing for Chapter 13 is a meeting of your creditors, followed by a hearing. The creditors meeting is known as the 341 meeting, and it may take place as soon as one month after you file. While your creditors are invited to attend this hearing, they may not actually send a representative.
After the 341 meeting, you will have a confirmation hearing with a judge. If your creditors, trustee, and the judge are in consensus, your bankruptcy case may be either dismissed or confirmed.
Step 9: Chapter 13 Repayment Plan
Once your Chapter 13 filing is approved, you can proceed with your repayment plan. It may take three to five years to pay off the predetermined amount, with your first payment due within 30 days of filing Chapter 13 bankruptcy forms. If you are unable to make your payments, your bankruptcy case may be dismissed rather than discharged.
What is the Difference Between Dismissed and Discharged?
When a bankruptcy case is dismissed, it means you did not complete your payments as scheduled and you’re no longer protected from your creditors. You will most likely need to repay all your debts. When a bankruptcy case is discharged, it means you are no longer obligated to repay the debts. Your goal is to have your bankruptcy discharged.
Step 10: Final Credit Counseling Course
When you reach the end of your Chapter 13 bankruptcy payments, you are required to attend a final credit counseling course. After fulfilling this obligation, you will receive verification of completion and your case can be considered for discharge.