FAQs — Chapter 13 Bankruptcy
Where Chapter 7 bankruptcy achieves the discharge of debt through liquidation of assets, Chapter 13 helps consumers—including self-employed individuals or individuals operating an unincorporated business—with sufficient income by helping them repay outstanding debt through the negotiation of new terms with creditors. Raleigh bankruptcy lawyer Douglas Q. Wickham and his staff at Hatch, Little & Bunn, LLP understand the stress and frustration faced by individuals and their families in the current economic downturn.
With over three decades of experience helping clients resolve their debt issues, Raleigh attorney Douglas Q. Wickham offers a free initial consultation to answer all questions. But the following frequently asked questions can help introduce individuals to the basics of Chapter 13 bankruptcy.
- What is Chapter 13 bankruptcy?
- Does Chapter 13 have specific eligibility requirements?
- How does Chapter 13 bankruptcy differ from Chapter 11?
- If I cannot pay my debts now, how would Chapter 13 change that?
- Can I keep my home if I have a mortgage?
- How much debt must I repay under Chapter 13?
- Do I need an attorney to file for Chapter 13?
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Also known as wage earners bankruptcy, Chapter 13 permits individuals with specific earnings to renegotiate with creditors to formulate a new debt repayment plan that helps them repay debt. The legal term for this process is restructuring. Experienced bankruptcy lawyers can work with individuals to identify if this option can provide an effective debt relief solution.
In essence, the law requires filers to have sufficient income to meet their daily living expenses, with additional funds available for debt repayment. One reason for initial consultations at bankruptcy law firms is to obtain assessments of client qualifications. Of course, attorneys cannot make final determinations until they complete a detailed financial review.
While both forms of bankruptcy involve the restructuring of debt, Chapter 13 bankruptcy generally pertains to consumer debt, while Chapter 11 bankruptcy typically restructures the debt of businesses. But many individuals are self-employed or operate unincorporated businesses, exposing their personal assets to debt risk. In cases like these, Chapter 13 can apply to their businesses as well.
Many individuals cannot repay their debt under current terms. But people who meet the Chapter 13 eligibility requirements may be financially capable of full repayment under new terms, such as by extending the length of the repayment period, typically by anywhere from three to five years. While extending the loan term represents the most common type of restructuring solution, an experienced bankruptcy attorney might be able to negotiate reduced interest or provide other solutions.
In most cases, you can keep your home provided you can bring missing payments current within three to five years while you get back to making all future mortgage payments on time.
In addition to paying all bankruptcy filing and related bankruptcy and attorney fees, you typically must pay 100 percent of all certain debt, including taxes, student loans, and child and spousal support. If you want to keep secured property such as a home or car, you must bring all outstanding payments current and continue to make future payments in full and on time. Many issues pertain to the repayment requirements for unsecured debt such as credit card balances, which can range anywhere from zero percent to 100 percent. Your bankruptcy lawyer may be able to negotiate reduced requirements for unsecured debt.
The complexity of the Chapter 13 filing process and the detailed reporting requirements virtually require the assistance of a knowledgeable bankruptcy lawyer—and his or her representation helps ensure the best financial outcome for clients.