An overview of Chapter 13 bankruptcy

On Behalf of | Sep 2, 2021 | Bankruptcy Law

Consumers in Stroudsburg, Pennsylvania, may consider bankruptcy to help relieve overwhelming debt. Chapter 13 bankruptcy is a solution for consumers who have a desire to pay their debts. This type of bankruptcy has several benefits.

How Chapter 13 bankruptcy works

Chapter 13 is a bankruptcy for wage earners who make too much money to qualify for Chapter 7. It helps debtors pay off debt through a court-approved structured payment plan that the debtor devises. Bankruptcy helps debtors pay unsecured debts, such as medical bills, in addition to secured debts, such as mortgages.

A debtor’s unsecured debt limit cannot exceed $419,275, and secured debts cannot exceed $1,275,850, but these figures can change. The debtor also must be current on taxes and verify filings with the court by submitting returns.

One benefit of Chapter 13 is that the debtor doesn’t have to lose nonexempt assets as long as they keep payments current. They get three to five years to pay debt, which gives them time to catch up on mortgages.

Filing Chapter 13

The process starts with the debtor filing a petition with the appropriate court in their state. They also need to gather required documentation for the trustee, which may include:

  • • Four years of tax returns
  • Proof of income
  • At least three months of bank account statements
  • Vehicle registration with proof of insurance and value
  • Proof of real estate appraisal
  • Retirement account statements
  • Identification, such as a valid driver’s license
  • Certificates from court-approved credit counseling

On the petition, they must list their past-due accounts and the type of debt for all secured and unsecured debts. Next, they should list all of their assets and their value because this determines payments.

Bankruptcy doesn’t remove all debts, but the automatic stay stops collection, wage garnishments and foreclosure temporarily. However, bankruptcy is typically seen as a last resort, so a debtor should study all of their options before filing.

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