Chapter 13 Bankruptcy in NORTHEAST Ohio

Chapter 13 Bankruptcy

What is a Chapter 13 bankruptcy?

This chapter of consumer bankruptcy is akin to a “reorganization.” It means that if you have an asset upon which you are behind on the payments and want to keep the asset, you can make payments on the asset through the bankruptcy to maintain and catch up on the amounts due and keep the asset. This chapter requires a “plan” that shows how you are going to make payments to your secured and unsecured creditors and how you are going to resolve any payments that you are behind. 

For example, if you have a house and you are behind six months of payments and the total amount due is $6000.00, you can use the chapter 13 to pay your regular mortgage payments going forward and take up to 60 months to catch up on the payments that you are behind. Depending on your income, you may be required to make payments to your unsecured creditors through the plan. 

You can also be required by the bankruptcy code to file a chapter 13 vs, a chapter 7, depending on your gross income. If you earn more than the average income for your family size for the county in which you live, you may have to file a chapter 13 instead of a chapter 7, regardless of a need to catch up on back payments. It is important to have a conversation with a qualified bankruptcy attorney regarding your income and assets to determine which chapter is best for you. 

In a chapter 13, you have the ability to adjust or eliminate property settlements from a divorce. This can be a valuable tool for you to get a fresh start. As with a chapter 7, a chapter 13 filing will stop lawsuits and collection efforts by your creditors.  If you have a plan that pays less than 100% to your unsecured creditors and you successfully complete the plan, the portion that was not paid through the plan to the unsecured creditors is discharged. Therefore, a fresh start is also available through a chapter 13 filing. 

The procedure in a chapter 13 filing is a bit more involved than for a chapter 7. The same filing and schedules are submitted to the court. However, in a chapter 13 filing, the plan must be filed with the court and approved by the trustee assigned to your case and your creditors, before you can work toward your discharge. 

What can a Chapter 13 do for me?

A chapter 13 filing can protect a house upon which you are behind in payments. It will stop the foreclosure and allow you to catch up on mortgage payments. When you complete the plan, you will be back on track to owning your home. If you have missed car payments and want to keep the car, a chapter 13 will allow you to catch up on the payments and keep your car. 

If you have a property settlement in a divorce and are facing legal action as a result of being unable to fulfill the requirements, you may be able to modify or eliminate the obligation. If you do not qualify for a chapter 7, you can still stop lawsuits and garnishments by filing a chapter 13.  If you have assets that have equity that cannot be protected by the State of Ohio exemptions, you can file a chapter 13 to eliminate your debt and keep your asset.

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The Process

You have decided to get out of debt using the federal bankruptcy laws. But now what? How does it work? 

The first step is to find a bankruptcy attorney that you feel comfortable with. When you meet with the attorney, they should ask you detailed questions about your assets, debts and income to get the full picture of how best to help you. 

On rare occasions, a bankruptcy may not be the best option for you. If that is the case, your attorney can help you to address the problem outside of bankruptcy. 

If bankruptcy is the best option for you, then you and your attorney can choose the chapter that is right for you. Most attorneys will give you “homework,” which includes a packet to fill out and a list of documents that they will need to complete your bankruptcy petition and schedules. Once you return the information requested, the attorney or their staff will start entering the information in the computer – bankruptcy filings are required to be electronic. Your attorney may request additional information to complete your documents. 

While your attorney is working on your documents, you will be taking the first of two required classes. These classes are completed online and your attorney usually refers you to a provider they trust. The fees for the bankruptcy and the first class must be paid and taken before your bankruptcy can be filed. 

Once your case is filed, you will be able to take the second of the two required classes. This is most commonly completed within 30 days after the filing of your case. When your case is filed, it is assigned a Trustee. This person is assigned to ensure that you have accurately listed all of your assets and debts and that the process is followed according to the law. 

You will usually meet with the Trustee (with your attorney present) only once. This is at what is typically called the Meeting of Creditors. Your creditors may attend this meeting but 99% of the time they do not. Your attorney will prepare you for the meeting and attend the meeting with you.  This meeting is held in a conference room and not a courtroom. It generally lasts less than 20 minutes. If the Trustee requires additional information, they will request it of you and your attorney. 

If you have assets that are not exempt and need to be liquidated to pay your creditors, you and your attorney will work with the Trustee to do that. If no information is needed and no assets have to be liquidated, then you just wait for the discharge to be ordered by the court. This occurs approximately 90 days from the date that the case was filed. If there are no assets to be liquidated, then your case will be closed within a couple weeks of the discharge order. 

If there are assets that had to be liquidated, then the process can last another four to eight months after the discharge is ordered. However, as long as you and your attorney are in compliance with the court, your discharge will be secure and you can move on with your fresh start, while the liquidation process moves through the court. 

How does bankruptcy affect me?

The biggest concern when filing bankruptcy seems to be the effect on the credit score of the filer and the ability to purchase a house after the filing. If your credit score is not already very low due to the non-payment of bills or your poor debt to income ratio, the bankruptcy filing will drastically lower your credit score. If it is low already, the filing will lower it even more. However, within a couple years after the filing, your score will be back to a level at which you can obtain credit with decent interest rates. The vehicle financing rules currently in place allow a person who has filed bankruptcy to finance a car, the day after they receive their bankruptcy discharge order. The interest rate will be extremely high. However, as long as you can show that you have the income to cover the payments, you can get a car. 

Buying a house will be more difficult. 

Current mortgage laws require that you are two to three years from the date of you discharge, before you can be considered for a mortgage. If you had a foreclosure in the process, the mortgage laws require that you be two years past the completion of the foreclosure. You can buy a house after bankruptcy but you will have to wait a minimum of two to three years from the date of your discharge. 

What about getting credit again? 

It is possible to do so. However, you should be very careful to avoid the pitfalls that you led you to a bankruptcy filing. You will most likely start with a secured credit card. This means that if the limit on your card is $300.00, you will have deposited the $300.00 with the credit card company. You may then use the card up to your limit. If you fail to make a payment, the credit card company will retain your deposit to pay the bill and cancel the secured credit card. The best practice to build your credit score with a secured or other credit card, is to charge a minimal about – maybe $20-$50 – and pay it off each month. This will show regular use and payments on your credit scores. 

What about renting a place to live? 

Most landlords will run a credit report. However, if you are honest with them up front, most landlords will not deny you based solely on a bankruptcy filing. You may not get your first choice of rentals but you will generally get one of your top three choices. 

What about my job? 

If you work in a profession that has licenses or other regulations, it is always advised to check with the licensing organization to determine if a bankruptcy filing will affect your license. Generally, it is not a problem. 

Where do I start?

Consult a bankruptcy attorney today to discuss your bankruptcy options. While you can file bankruptcy without an attorney, you’re taking a huge risk because there are so many things that can go wrong.

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