Deciding to file for Chapter 13 bankruptcy is a big step, and you want to feel confident that you are doing the right thing. Clark & Washington, PC, the largest bankruptcy filers in Georgia, provide answers to the four most frequently asked questions in this article that should help you know whether Chapter 13 bankruptcy is the best debt relief option for you.

What is Chapter 13 Bankruptcy, and How Do I File?

Also known as a wage earner’s plan, Chapter 13 bankruptcy allows filers with at least one regular source of income to pay creditors over a period of three to five years. Once a bankruptcy court grants a discharge, creditors must abide by the repayment plan it approved and cannot contact you to demand immediate or larger payments.

Typically, bankruptcy courts assign a repayment plan of three years if your income is more than the median income in Georgia for the same household size. The plan extends for five years if your annual household income is less than the state median. Although bankruptcy judges can move the total repayment time up or down based on your individual circumstances, federal law states that it cannot exceed five years for any reason.

Any person, self-employed individual, or the operator of an unincorporated business may file for Chapter 13 bankruptcy if their unsecured debts do not exceed $394,575 and their secured debts do not exceed $1,184,200. The federal government occasionally changes these thresholds in response to the consumer price index. Partnerships and corporations cannot file for Chapter 13 bankruptcy.

You will need to gather and submit the following documents when you file for Chapter 13 bankruptcy:

  • A completed Chapter 13 bankruptcy petition form
  • Current schedule of assets and liabilities
  • Current schedule of income and expenses
  • Copies of unexpired leases and executory contracts
  • Full statement of financial affairs
  • Certificate of credit counseling and a debt repayment plan developed through credit counseling
  • Evidence of receiving current payments from an employer or through a business
  • Statement of typical monthly net income, including whether you anticipate it to increase or decrease during your repayment period
  • Copy of most recent tax return

As with Chapter 7 bankruptcy, married couples can file independently of one another and one spouse may choose to file for Chapter 13 bankruptcy while the other does not.

Is Chapter 13 Bankruptcy a Good Idea?

filing for bankruptcy questions

Filing for Chapter 13 bankruptcy can be an ideal option when you want to retain more of your personal assets, including real estate holdings. This bankruptcy option can stop foreclosure on your home and allow you to catch up on late payments over time. You may be able to lower your payments and interest charged over the life of a loan on some or all secured debts.

If you are concerned about any debt co-signers, Chapter 13 protects them from having to pay your portion or having creditors file a lawsuit against them. One last benefit to consider is that Chapter 13 bankruptcy is similar to a debt consolidation loan. You make one monthly payment to a bankruptcy trustee who then disburses individual payments to your creditors based on the approved repayment plan.

Is Chapter 13 the Same as Bankruptcy?

Yes, Chapter 13 is a bankruptcy for credit purposes and will remain on your report for up to seven years. Despite this, most creditors look more favorably on applicants who have filed for Chapter 13 bankruptcy as compared to those who have opted for Chapter 7. Creditors receive some or all of their money over time through Chapter 13, whereas Chapter 7 eliminates most debts entirely.

How Much Do You Pay Back in Chapter 13 Bankruptcy?

The amount that Chapter 13 bankruptcy filers pay to creditors varies from one person to the next. The process for determining the monthly payment amount is somewhat complex and considers many factors. For example, a bankruptcy trustee looks at your monthly income and expenses, total amount and types of debt, and the value of your property.

Because you must have regular income to file the Wage Earner’s plan, a bankruptcy trustee considers increases, decreases, and seasonal fluctuations to what you earn. For example, if you are a landscaper who works overtime during the summer but do not work at all in the winter, the trustee can adjust your monthly payments to creditors based on what you take in each month. You must be as accurate as possible when listing potential increases and decreases to your income during the repayment period.

Here is a typical example of how a bankruptcy trustee determines your monthly payment to creditors:

  • Start with your annual income
  • Subtract annual expenses
  • Add debts that the court has determined to take priority
  • Add the total value of non-exempt assets
  • Add the total sum of your repayment plan and divide it by the number of months approved by the bankruptcy court.

Clark and Washington, PC offers free consultations to anyone considering filing for bankruptcy in Georgia. Please call us at 770-488-9302 or complete this form to reserve your time.