Bankruptcy is a legal debt remedy that many people believe is limited to individuals struggling severely due to a low income and debts they cannot repay. Many people aren’t aware that Chapter 13 (aka “wage earner” bankruptcy) can provide just as much support to those with steady incomes and accumulated debts as Chapter 7 (aka “liquidation” bankruptcy) offers those at or below a state’s median or average income. Both chapters are valuable support systems for individuals in many different financial circumstances. Whether you plan to file for Chapter 7 or Chapter 13 bankruptcy in Pipestone, MN, Behm Law Group Ltd. can help you build a strong case and receive long-lasting debt relief.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy works to reorganize your debts into a three- to five-year repayment plan that fits your income. Over that time, you will pay only a percentage of your unsecured debts, like credit card debts and medical bills. At the end of the three-to five-year period, the remaining balances on those unsecured debts will be discharged.
With secured debts, like mortgages or car loans, one can pay those debts in chapter 13 under adjusted and more favorable terms. With a vehicle loan, for instance, one can lower the applicable interest rate. Further, one must only pay the present value of the vehicle rather than what is actually owed on the subject loan. This is called “cram down”. For instance, if one has a vehicle that is worth $10,000.00 but one owes $20,000.00 on the subject loan, one must only pay the $10,000.00 present value.
Also, if someone is delinquent or past due with one’s mortgage payments, those past due payments can be paid back or “cured” through a chapter 13 plan and the mortgage lender will not be able to commence foreclosure proceedings.
Your submitted petition will include your proposed repayment plan that you and your attorney have worked out together. The trustee will review the plan and your creditors will be allowed to examine it as well. Your bankruptcy plan will then be submitted to and approved by the bankruptcy court.
Although the court may take a month or two to review and approve a submitted plan, you will still be required to start payments to the trustee within thirty (30) days after the plan has been filed with the bankruptcy court. During this time, however, it’s possible that you may have a change in financial circumstances that necessitates a modification to your plan even before it is approved by the bankruptcy court.
Submitting an explanation and documentation to the bankruptcy court denoting the changed financial circumstances will likely be an acceptable basis for the bankruptcy court to allow the plan to be modified before approving it. Presume that you initially submit a three-year (36 month) plan that provides for monthly payments of $500.00. Presume further that after you submit your initial plan your monthly income decreases so that you can only afford to make monthly payments of $200.00. If you and your attorney provide the chapter 13 trustee and the bankruptcy court with documentation denoting the reasons for the income changes, you can file a modified three-year (36 month) chapter 13 plan that provides for monthly payments of $200.00.
If you have income or other financial circumstances that change after your plan is confirmed or approved by the bankruptcy court during your three- to five-year repayment period, you will be able to make further adjustments. If you’ve had a major life change like losing your job, getting divorced, or having a child, you can file a motion with the bankruptcy court to change the terms of your chapter 13 plan.