If you are unable to make your monthly debt payments, one option is to file for bankruptcy. Chapter 13 bankruptcy is a type of bankruptcy that permits you to keep your assets in exchange for repaying some or all of your debts. Not sure if chapter 13 is right for you? Here are a few things you need to know to make an informed decision.
1. Chapter 13 Bankruptcy Involves a Three to Five Year Payment Plan
Expect the payment plan for your chapter 13 bankruptcy to last three to five years. Once the plan is complete, the bankruptcy trustee dissolves any remaining unsecured debt. The length of your chapter 13 plan depends on how much debt you have and your income.
If you qualify for a three-year plan, you do have the option to propose a five-year plan in order to make your payments more affordable. Check with a lawyer with bankruptcy experience to see if this is the right move for your situation.
2. You Need to Seek Permission to Take on New Debt While in Chapter 13 Bankruptcy
One common misconception is that you are unable to take on new debt while in a chapter 13 repayment plan. This is not true; however, if you do decide that you need to take on more debt, you have to procure permission from the bankruptcy trustee.
Your lawyer can help you file a motion to take on more debt. Be sure to explain what the debt is for; for example, if you need to buy a new car, explain that you need to take out an auto loan in order to have a car to get to and from work.
Even though you are borrowing from yourself, you also have to get permission to take out a 401(k) loan.
3. Your Chapter 13 Payments May Change During Your Repayment Plan
Another misconception is that your chapter 13 plans are guaranteed to stay the same during your repayment plan. This is not always the case. If you receive a significant raise, the bankruptcy trustee may increase your payment.
Usually, cost of living raises do not cause your payment to go up. To be on the safe side, tell your attorney about any raises to see if they should be reported to the bankruptcy trustee. The same principle applies to unexpected windfalls, such as inheritances.
Your plan may also involve an increase in the payments as part of its terms and conditions. For example, if you have a 401(k) loan that you will pay off midway through your plan, the bankruptcy trustee may require that you devote some of the money that you were using for this payment to your chapter 13 plan payment. Contact a law firm in your area, like Molleur Law Office , for more help.