How You Can Find Financial Stability
Millions of Americans face financial hardship every year, struggling under the weight of mounting bills and creditor calls. If you’re one of them, and the traditional paths to debt relief seem out of reach, you might be wondering: Is there a way to catch my breath and get back on track without losing everything?
The answer could be Chapter 13 bankruptcy. It’s a powerful tool that allows you to reorganize your finances under court protection, offering a structured repayment plan and a chance to clear some or all of your debt.
Quick Summary:
Chapter 13 bankruptcy is a structured way to get back on the financial track. It offers a manageable plan to reduce debt while protecting you from creditors.
- Choosing Chapter 13: Understand why Chapter 13 might be the best choice for managing and repaying your debts.
- Eligibility: Learn who can file under Chapter 13 and their requirements.
- The Process: Discover how to start a Chapter 13 bankruptcy and what steps are involved.
- Repayment Plan: Find out how to create a plan that works for you and what happens if your financial situation changes.
- Discharge: Learn about the unique debt relief Chapter 13 offers once you complete your repayment plan.
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy provides a controlled approach to paying off debt. It also protects you from creditors.
What is Chapter 13 Bankruptcy?
Chapter 13 Bankruptcy is known as the “wage earner’s plan.” People with a steady income can set up a plan to pay back all or some of their debts. You can pay your creditors over three to five years based on your income compared to Florida’s median family income.
- If your monthly income is below Florida’s average, your payment plan will be three years unless there’s a reason to extend it.
- Your plan will likely span five years if you earn more than the average. The law says no plan can stretch beyond five years. During this time, creditors can’t chase you for payment.
Chapter 7 vs. Chapter 13 Bankruptcy: Key Differences
Deciding between Chapter 7 and Chapter 13 bankruptcy can be complex. Here’s a simplified guide to their main differences:
- Income Eligibility
- Chapter 7: You must pass a Means Test comparing your income to your area’s median. If it is too high, you might be pushed toward Chapter 13 unless you qualify under specific exceptions.
- Chapter 13: Suitable for those with higher disposable income, capable of funding a repayment plan.
- Asset Liquidation
- Chapter 7: “Liquidation bankruptcy,” where non-exempt assets might be sold to pay debts. Many cases are “no asset” cases, meaning you keep everything.
- Chapter 13: You keep all assets but must pay creditors an amount equal to the value of the non-exempt assets.
- Case Duration
- Chapter 7: Quick, usually 4-6 months to discharge.
- Chapter 13: Lasts 3-5 years due to the repayment plan.
- Debt Handling Techniques
- Chapter 7: No option for cramdowns or lien stripping. Surrendering collateral clears the debt without further obligations.
- Chapter 13: Allows cramdowns (reducing secured debts to the asset’s value) and lien stripping (removing junior liens on underwater properties).
- Repayment Plan
- Chapter 7: No repayment plan; it focuses on liquidating non-exempt assets.
- Chapter 13: Requires a detailed plan on how to pay back debts, often at a fraction of the unsecured debts.
Benefits of Choosing Chapter 13 Bankruptcy
Chapter 13 bankruptcy offers several vital advantages for people looking to manage their debt:
- Save Your Home from Foreclosure: Filing for Chapter 13 can stop foreclosure processes, allowing you to catch up on missed mortgage payments gradually. However, you must keep up with your current mortgage payments during your Chapter 13 plan.
- Lower Payments on Secured Debts: You can reorganize certain secured debts (except your primary residence mortgage) and potentially reduce your payments by spreading them out over the life of your Chapter 13 plan.
- Protection for Co-signers: A special rule in Chapter 13 can protect people who co-signed your loans, offering them relief from creditors.
- Acts Like a Consolidation Loan: Instead of dealing with creditors directly, you make one consolidated payment to a Chapter 13 trustee. The trustee then pays your creditors. This simplifies the process and reduces direct contact with creditors.
Chapter 13 Eligibility in Florida
Filing for Chapter 13 bankruptcy is an option for many, including those who are self-employed or run an unincorporated business. Here’s what you need to know about eligibility:
- Debt Limits: Your total secured and unsecured debts must be under $2,750,000.
- Recent Bankruptcy History: If you had a bankruptcy case dismissed in the last 180 days because you didn’t follow court orders or voluntarily dismissed a previous case after creditors tried to reclaim property they have a lien on, you can’t file.
- Credit Counseling Requirement: You must complete credit counseling from an approved agency within 180 days before filing. This rule has some exceptions, like emergencies or a lack of available counseling agencies.
Debt Limitations for Chapter 13
When filing for Chapter 13 bankruptcy in Florida, there are specific debt limits you need to know:
- Unsecured Debts: These are debts without collateral, like credit card bills and medical expenses. For Chapter 13, they must be below $394,725.
- Secured Debts: These debts are backed by collateral, such as your house or car. The limit for these is $1,184,200.
Remember, these debt limits can change, so it’s essential to stay updated.
Residency Requirements in Florida
To use Florida’s bankruptcy exemptions, you must have lived in the state for at least 730 days (2 years) before filing your bankruptcy petition. Here’s how it works:
- Two-Year Rule: Live in Florida for 2 years before filing to use state exemptions.
- If You Moved: If you haven’t been in any state for the full 2 years before filing, look at where you lived most of the 180 days before the 2-year mark.
- Example: Moved from New Mexico to Florida but haven’t been in Florida for 2 years? You’d use New Mexico’s exemptions.
- No Eligible State Exemptions: You can use federal bankruptcy exemptions if you don’t qualify for any state’s exemptions.
Understanding Chapter 13 Bankruptcy Process
Filing for Chapter 13 bankruptcy is a way to reorganize your debt and manage payments. Here’s a simplified breakdown of how it works:
Starting Your Chapter 13 Case
- Filing a Petition: Begin by filing a petition in your local bankruptcy court. You must include detailed schedules of your assets, debts, income, expenses, and any contracts or leases you own.
- Required Documents: Provide a certificate of credit counseling, a repayment plan if one was made, recent pay stubs, a statement of your financial situation, and tax return information.
- Fees: Expect to pay a filing fee and an administrative fee, which can be paid in installments if the court agrees.
What Happens Next
- Automatic Stay: Once you file, most collection actions against you or your property must stop, thanks to an automatic stay.
- Trustee Appointment: A trustee will oversee your case, collect payments from you, and distribute them to your creditors.
- Protecting Co-debtors: Chapter 13 includes protections for co-debtors on consumer debts, preventing creditors from pursuing them for payment.
Moving Forward
- Meeting of Creditors: You’ll attend a conference where creditors and the trustee can ask about your finances and the repayment plan.
- Repayment Plan Hearing: After addressing any issues with your plan, a court hearing will finalize the terms.
Key Points To Remember
- Keep Up with Payments: It’s crucial to make regular mortgage payments and stick to your repayment plan to avoid losing your home.
- Creditors’ Claims: Unsecured creditors must file their claims within a set period to be part of the repayment plan.
Role of Bankruptcy Trustee in Chapter 13
The Chapter 13 bankruptcy trustee plays a unique role, unlike the Chapter 7 trustee. Here’s a quick overview:
- Chapter 7 Trustee’s Role: Finds and sells the debtor’s non-exempt assets to pay off creditors.
- Chapter 13 Trustee’s Role: Focuses on overseeing the debtor’s payment plan. They collect payments from the debtor and distribute them to creditors according to the court-approved plan.
The Automatic Stay: Stopping Creditor Harassment
Filing for bankruptcy in Florida triggers a powerful tool called the automatic stay. This immediate legal order stops all collection activities by creditors, including phone calls, wage garnishments, and even foreclosure auctions.
Duration of the Automatic Stay
- The stay typically lasts until your bankruptcy case concludes.
- Chapters 7 and 13 end when your case does. A creditor can resume collection efforts if they ask for and receive court permission.
Stopping Foreclosure and Repossession
- Foreclosure: Filing for bankruptcy halts foreclosure processes instantly. If you file even moments before an auction, the sale is stopped.
- Car Repossession: The automatic stay can prevent your car from being repossessed. But, act quickly; if the car is repossessed before filing, the automatic stay won’t retrieve it.
Wage Garnishment
- Filing for bankruptcy stops wage garnishments right away. It’s faster than claiming exemptions or waiting for a court order.
Exceptions to the Automatic Stay
Not all actions are controlled by the automatic stay. Exceptions include:
- Family Support: Child support and custody cases continue despite the stay.
- Criminal Cases: Bankruptcy doesn’t affect criminal proceedings, except in cases directly related to financial issues, like bad checks.
- Tax Proceedings: Actions for tax assessment or collection can proceed.
- License Suspensions: The stay doesn’t affect attempts to reinstate licenses suspended due to unpaid debts related to criminal activity.
Chapter 13 Repayment Plan and Confirmation Hearing
Crafting Your Repayment Plan
When you file for Chapter 13 bankruptcy, you must propose a repayment plan. This plan outlines how you’ll repay your debts over time, typically in fixed amounts. You’ll repay the trustee, who then pays your creditors. You have 14 days after filing your petition to submit this plan unless the court gives you more time.
Different Types of Debts in Your Plan
- Priority Claims: These include taxes and bankruptcy costs, which must be paid in full.
- Secured Claims: Debts secured by property like cars or houses. You’ll need to pay at least the value of the collateral.
- Unsecured Claims: Debts without collateral backing, like credit card bills, don’t always have to be paid in full.
How the Plan Works
- Your plan must use your “disposable income” to pay off debts. Disposable income is what’s left after essential expenses and charitable donations.
- The length of your plan depends on your income. Your plan will be three years if it’s below your Florida’’s median. If it’s above, it’ll be five years.
- You start paying the trustee within 30 days of filing, even before the plan is confirmed.
The Confirmation Hearing
- The court reviews your plan within 45 days after your creditors’ meeting to decide if it’s feasible and follows bankruptcy rules.
- Creditors can object to your plan, usually if they think they’re getting less than if your assets were liquidated or the plan doesn’t use all your disposable income.
- If approved, the trustee starts distributing payments. Adjust your plan or convert to Chapter 7 bankruptcy if not.
Adjusting to Changes
- Life happens, and if your situation changes, you might need to modify your plan before or after it’s confirmed.
- You, the trustee, or an unsecured creditor can request modifications.
What Happens When The Chapter 13 Plan Is Implemented?
After your Chapter 13 repayment plan is approved by the court, it’s crucial to make it work. Here’s what you need to know:
Following the Plan
- Binding Agreement: The approved plan is a binding agreement between you and your creditors. You must follow it closely.
- Regular Payments: To complete the plan successfully, you need to make periodic payments to the trustee, either directly or via payroll deductions.
- Fixed Budget: Living on a fixed budget is essential during this time. It helps ensure you can make your plan payments without issue.
Managing New Debts
- Restrictions on New Debt: You can’t take on new debt without the trustee’s permission. New debts could jeopardize your ability to stick to your plan.
Consequences of Not Sticking to the Plan
- Possible Case Dismissal: If you miss payments, the court might dismiss your case or switch it to a Chapter 7 bankruptcy, leading to the liquidation of your assets.
- Impact of Not Paying Domestic Support: Failing to pay any domestic support obligations or not making required tax filings can also lead to the dismissal or conversion of your case.
Understanding the Chapter 13 Discharge
The Chapter 13 discharge is a crucial step in your bankruptcy process. It marks the completion of your repayment plan. It’s important to know what it involves:
Eligibility for Discharge
- Completion of Payments: You’re eligible once you’ve made all payments under your plan.
- Support Obligations: You must certify that all due domestic support obligations (like alimony or child support) have been paid.
- Previous Discharge Limitations: You can’t have received a discharge in a Chapter 13 case within the past two years or a Chapter 7, 11, or 12 case within the past four years.
- Financial Management Course: Completing an approved financial management course is required if available in your district.
Conditions and Scope
- Homestead Exemption: The court checks for any reason that might limit your homestead exemption before granting a discharge.
- Debts Covered: The discharge releases you from debts included in your plan or disallowed, with some exceptions.
Exceptions to Discharge
Some debts aren’t covered by the Chapter 13 discharge:
- Long-Term Obligations: Such as home mortgages that extend beyond your plan.
- Non-dischargeable Debts: Certain taxes, government-funded educational loans, DUI-related debts, child support, alimony, and damages for personal injury or death.
- Certain Fines and Restitution: Debts for criminal fines or restitution aren’t discharged.
Broad Scope of Chapter 13 Discharge
Chapter 13 discharge can cover some debts not dischargeable under Chapter 7, like debts from willful and malicious injury to property, certain tax-related debts, and debts from property settlements in divorce or separation proceedings.
What is a Chapter 13 Hardship Discharge?
Sometimes, things don’t go as planned after starting a Chapter 13 repayment plan. If you can’t finish your payment plan for reasons beyond your control, you might qualify for a “hardship discharge.” This is how it works:
Preparing for a Hardship Discharge
- Unexpected Problems: The reason you can’t finish the plan must be something you can’t control, like a severe illness or injury that stops you from working.
- Fair to Creditors: Your creditors must have gotten at least as much money as they would have if you filed for Chapter 7 bankruptcy.
- No Plan B: Changing your payment plan isn’t an option to solve the problem.
Limits of the Hardship Discharge
A hardship discharge doesn’t wipe out all types of debt. It won’t cover:
- Certain Undischarged Debts: Debts that can’t be erased in Chapter 7 bankruptcy aren’t covered by a hardship discharge in Chapter 13.
If life throws you a curveball and you can’t continue your Chapter 13 plan payments, a hardship discharge might offer a way out. However, it has some limitations on the debts it can relieve.
Ready for Relief? Ask Our Orlando FL Chapter 13 Attorney How!
Our Orlando, FL, Chapter 13 attorney at Tejes Law, PLLC, is here to help. We understand the challenges you’re facing and offer the personalized advice and strategies needed to navigate Chapter 13 bankruptcy successfully. Our firm has the qualifications and experience to address your financial issues, providing tailored solutions for a brighter financial future. Ready to take the first step towards regaining control of your finances? Contact Tejes Law, PLLC, today for a free consultation. Let’s start working together on your path to financial stability.
