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What is Chapter 13 Bankruptcy?

Filing for Chapter 13 in Washington State. What is a Chapter 13? How does a person qualify? How long is the plan usually? How will it save their house? What does it specifically entail?

What is a Chapter 13 Bankruptcy?

A Chapter 13 bankruptcy is a court-approved payment plan. With your attorney you will prepare a plan that to pay back certain debts, and discharge others. Your attorney will work with the Court and the chapter 13 trustee to get the plan approved. The Court will protect you from your creditors while you make your plan payments and complete your plan.

Debts like taxes, back child support, and secured debt on vehicles and other items you want to keep usually have to be paid in full through the plan. But the Court can protect you, even from the IRS, while you get caught up. You can also change the amount you owe on vehicles and other property, and can often greatly reduce the amount you pay. Unsecured debts like credit cards and medical bills are usually paid very little or nothing in chapter 13 plans.

Most people file chapter 13 bankruptcies to save their houses from foreclosure, save their vehicles from being repossessed, or to pay back child support or back taxes. Often we file chapter 13’s for people who have filed a chapter 7 in the past 8 years—they cannot do another chapter 7 for at least 8 years, but they can file a chapter 13 four years after a chapter 7. Finally, if someone has too many assets that they would lose in a chapter 7 liquidation, they can keep those assets and pay the equivalent amount back to the creditors in a chapter 13 payment plan.

How does a person qualify for a Washington Chapter 13 bankruptcy?

To qualify for a chapter 13, you must have enough disposable income to fund the plan. “Disposable income” is the difference between what you take home in income each month, and how much you pay on regular living expenses, like rent/mortgage, food, clothes, gas, and many others. Whatever is left over goes into the plan to pay what needs to be paid in full.

For instance, if you owe $10,000 to the IRS, this is one of the debts that usually has to be paid in full during the course of your plan. If you do not have enough to pay the IRS claim in full in the maximum length of your plan, then you may not be able to propose a workable plan. We specialize in complex situations like yours, and are able to tell you quickly how we can help you.

You also cannot be above the debt limits for a chapter 13, which currently are $ 360,475 of unsecured debt (such as credit cards, medical bills, and the unsecured portion of vehicle loans, houses, and other secured debts) and $1,081,400 of secured debt (like vehicle loans or home mortgages). If you do not qualify for a chapter 7 because you have too much disposable income, and you are above these debt limits, you may need to do a chapter 11 bankruptcy instead.

How long is a Washington Chapter 13 bankruptcy Plan usually?

A chapter 13 plan runs a minimum of 3 years, and a maximum of 5 years. If you pay all of your debts in full in your plan, then you can complete it in less than 3 years.

How will a Washington Chapter 13 bankruptcy save my house?

Chapter 13 bankruptcies are often referred to as “house savers”. This is because the bankruptcy Court can stop a foreclosure in its tracks, and give you a chance to get caught up on your missed payments through your chapter 13 plan. If you owe more on your first mortgage than the house is worth, we may even be able to strip the 2nd mortgage off! We work with you to make an affordable plan that will get you back on track.

What is involved in a Washington chapter 13 bankruptcy?

First, we gather a great deal of information about your income, expenses, and debts. We analyze it to see if you qualify, and if you can afford to fund a chapter 13 plan that will meet your goals.

Second, we organize the information and prepare all of your court documents, including the chapter 13 plan.

Third, we prepare you for your meeting of the creditors, and appear in court with you. The Trustee will ask you questions to make sure all of the information is true and correct, and to make sure the plan will work, and will pay all of the creditors what they are entitled to under the law.

Fourth, we work with the Trustee to get your plan confirmed by the bankruptcy judge, and make any changes that are required.

Finally, we guide you through the process, and help you through the plan. In case things happen in your life that affect the plan, we are there to help you change the plan if necessary. We have a very high success rate with our chapter 13 clients, and we have the knowledge, experience, and creativity that are so important in working out a plan that meets your goals.

The basic process of a Chapter 13

A Chapter 13 plan is a type of bankruptcy that is a repayment plan where you pay back debt according to what you can afford. There are various reasons why you might want to file a Chapter 13. Some people feel good about paying some of their debt off. Some people need to save their home from foreclosure. Some people need to avoid repossession or, strip a second mortgage, protect vulnerable property or deal with taxes that can’t be wiped out in bankruptcy.

The first step is to consult an attorney with experience doing Chapter 13s. The procedure for a successful Chapter 13 is complicated and people who try it on their own are rarely successful. At your initial meeting with your attorney, you will go over your property, your debts, your income and your expenses to see whether a Chapter 13 is right for you. You should have documents with you like pay stubs, tax returns and bank statements. At this consultation an attorney should be able to estimate what your payment will be.

A Chapter 13 is started by filing a petition and a Chapter 13 plan with the bankruptcy court. The plan shows how you will pay your debts back in the next three to five years. It shows things like how quickly you intend to pay mortgage arrears back, how much you intend to pay for a car and what percentage you will pay to other creditors.

Creditors have a deadline for filing a claim in your case. The claim states how much you will pay them. You can object to the claim if you think it is too high.

A month after your case is filed, you go to a meeting of creditors. A trustee is appointed to look over your case and ask for changes in your plan. The trustee conducts the meeting, which you and your attorney must attend. Creditors usually don’t appear. The trustee also takes monthly payments from you and pays your creditors according to your plan. Creditors and the trustee can object to your plan. If a compromise can’t be reached, a hearing is held and a bankruptcy judge makes the final decisions about your plan. Finally, your plan is confirmed by a bankruptcy judge and you just continue to make payments until the plan is over. However, you can ask for changes in your plan or even convert your case to a Chapter 7 if your income drops.