When you find yourself unable to pay your credit card bills, mortgage, and other debts, you may be understandably anxious and fearful about your future. If you struggle with debt, you do have options to get on the path toward a debt-free life. For many people in Vermont, filing for Chapter 13 bankruptcy is the tool they need to get their financial affairs in order.
Making the decision to file for bankruptcy can be difficult - we get it. But you deserve a helping hand to protect your family and your future. For 30 years, Vermont Chapter 13 bankruptcy lawyer David Lynch has helped people in situations like yours get their debt under control, keep their homes and their property, and work toward financial health.
When you choose Lynch Legal Services, PLLC to help you with your case, you can expect down-to-earth, personalized attention to help give you the understanding and confidence to take back control of your life. Our northern Vermont Chapter 13 bankruptcy attorney wants to help you be in charge of your life again.
Contact us today to for a free and confidential case evaluation to go over your options. We'll tell you more about how our firm can help you if you decide to pursue Chapter 13 bankruptcy.
Chapter 13 bankruptcy refers to the process where you reorganize your outstanding debts to make them manageable. This reorganization is a plan under which you pay what you can afford to pay in a 3 to 5 year plan, and your unsecured creditors share in the moneys available through the plan on a pro-rata basis. For this reason, Chapter 13 bankruptcy is also referred to as "reorganization" bankruptcy.
Unlike the other form of bankruptcy for individuals, Chapter 7 bankruptcy, you will be able to preserve assets that you would lose in a Chapter 7 bankruptcy. Instead, you use your disposable or available income to make payments toward your debts under a plan approved by the court. Chapter 13 bankruptcy is also sometimes called a "wage earner's plan."
If you comply with the plan, certain eligible outstanding debts are extinguished when it's over. That means you no longer has any legal responsibility to repay those debts.
Chapter 13 bankruptcy has certain advantages over loan modification, debt consolidation, or a Chapter 7 bankruptcy. These include:
- Automatic bankruptcy stay - As with most bankruptcies, a Chapter 13 bankruptcy entitles you to a "stay," which prohibits your creditors from trying to collect on debts you owe. That means they can't contact you about your debt, file suit to collect on the debt, garnish your wages or financial accounts, or seize or foreclose on an asset securing the debt.
- Debtors keep their assets - Unlike in a Chapter 7 liquidation bankruptcy, in a Chapter 13 bankruptcy you don't have to sell off most of your assets. Instead, you use your disposable income to make payments toward your debt.
- Stop foreclosure and keep your home - Chapter 13 bankruptcy is often used to avoid foreclosure and loss of your home. In addition to the automatic stay which prevents the bank from pursuing foreclosure, in a Chapter 13 bankruptcy you can keep your home by stopping the foreclosure and submitting a plan wherein you catch up on the arrears that are due to the mortgage holder. You are only required to pay the amounts that are behind and get current on your payments under your existing mortgage.
- You are eligible for relief in Chapter 13 even though you may not be able to file for Chapter 7 because your income is too high to satisfy the Chapter 7 means test.
In some cases, you may be able to remove mortgages from you home if the value of the home is less than the value of certain secured debts. You will also be able to avoid judgment liens that impair exemptions you may claim on your assets, just as you can in Chapter 7.
However, Chapter 13 bankruptcies have certain drawbacks, including:
- Damage to your credit report - Chapter 13 bankruptcies stay on your credit report for seven years after the filing date. This makes it harder to get approved for credit in the future. Still, a bankruptcy on your credit report is be better than defaulting on accounts.
- Chapter 13 bankruptcy lasts for years - Unlike a Chapter 7 bankruptcy, which wipes out your dischargeable debt in a matter of months, Chapter 13 bankruptcies have repayment plans that last for three to five years. Although, there are certain debts that you can get discharged in Chapter 13 that you cannot get discharged in Chapter 7.
The Chapter 13 bankruptcy process begins with a credit counseling course approved by the bankruptcy court. You'll have to complete the course within 180 days prior to filing your petition.
Your Chapter 13 bankruptcy petition must be filed with the federal bankruptcy court for Vermont, along with the required filing fees. In addition to the petition itself, you must also file:
- A schedule of your assets and debts
- A schedule of income and expenses
- A schedule of your contracts and leases
- A statement of your financial affairs
After filing your petition, the court will assign a bankruptcy trustee to your case. You must provide the trustee with a copy of your most recent income tax returns and all tax returns you file during your bankruptcy case.
Filing the petition starts an automatic stay. Your creditors won't be able to attempt to collect on debts after you file.
Within 14 days, you must file a proposed repayment plan. The plan will last between three and five years. A few weeks after that, the trustee will hold a meeting of creditors (although creditors often don't attend this meeting), at which the trustee and your creditors may ask you questions about your financial affairs and your proposed plan.
After all concerns about your proposed repayment plan are resolved, the court will approve the plan. You'll begin making your payments under the plan to the trustee.
If you comply with the terms of your plan, at the end of the plan the court will issue you a discharge releasing you from any legal obligation to repay any dischargeable debts.
Under the Chapter 13 repayment plan, you don't make payments directly to your creditors. Instead, you turn over your disposable to the trustee. The trustee distributes the funds to the creditors under the terms of the plan.
In a repayment plan, your debts are categorized as priority, secured, and unsecured claims. Priority claims have special status under bankruptcy law and include debts such as unpaid taxes. Secured claims include debts that are secured by collateral, such as mortgages and car loans. Most other debts fall into the unsecured category, including credit card debt, personal loans, and medical bills. If you are behind an a secured debt and facing losing a house or car, you may propose a plan that provides for reinstating the secured loan by paying the arrears due on the date of filing the case.
A repayment plan must require you to pay all priority claims in full unless the creditor agrees to different treatment.
As for secured claims, the plan must require you to pay at least the value of the collateral securing the debt (although under certain circumstances, including recent car loans, you may be required to pay the full value of the debt). Certain secured debts, such as home mortgages, may be paid over the original payment schedule provided you at least pay off all late/arrears amounts during the repayment plan period.
As for unsecured claims, in practice creditors often receive little or no portion of the debt balance. You are only required to pay all your projected disposable income. The repayment plan is only required to guarantee unsecured creditors as much repayment as they would have received in a Chapter 7 bankruptcy.
Once you file your bankruptcy petition with the court, you generally have 14 days to file a proposed repayment plan with the court. Then, the court or the trustee will schedule a hearing to take place within about 60 days to review the proposed plan.
Assuming your plan is approved at the hearing, it will go into effect shortly thereafter. A Chapter 13 bankruptcy repayment plan lasts between three and five years. Only at the conclusion of the plan (assuming you comply with its terms) will your bankruptcy case end. When it's over, you will receive a discharge of any remaining eligible outstanding debt from the bankruptcy court.
Chapter 13 bankruptcy is often thought of like a form of debt consolidation, as all of your creditors must submit their claims to the bankruptcy trustee. The trustee gets regular payments from you that the trustee uses to make payments to creditors under the terms of your repayment plan.
Traditional debt consolidation offers you a loan to be used to pay off multiple individual debts and gives you one payment to make toward that debt. Depending on your circumstances, this can have certain benefits over Chapter 13 bankruptcy, including:
- Reduced interest rates - Debt consolidation loans often have lower interest rates than the rates on the individual debts being consolidated. You could pay less in interest toward your overall debt load.
- Less of a hit to credit report - Debt consolidation also means that you don't have the black mark of bankruptcy on your credit report, which lasts for seven years from the date of your bankruptcy filing. Paying off revolving credit balances, like credit cards, may greatly improve your credit score.
However, debt consolidation doesn't give you the protection from collection efforts that bankruptcy provides. In addition, some debt consolidation loans cannot be used to pay off certain debts, such as student loan debt or home mortgages. You will need to be approved for a debt consolidation loan, which may prove difficult if you are already having problems paying your existing debt.
When you are having difficulties making the required payments on your debts, Chapter 13 bankruptcy might offer you the opportunity to get your finances under control and to start on the path toward paying off your debts. Our Vermont Chapter 13 bankruptcy attorney can help you begin moving towards a debt-free life by:
- Advising you of your options for addressing your debt (loan modifications, debt consolidation, in addition to Chapter 13 bankruptcy) and helping you choose the option that works best for your circumstances
- Helping you to gather and organize your financial documents and information
- Preparing your Chapter 13 bankruptcy petition and your proposed repayment plan and filing your documents with the bankruptcy court
- Representing your rights and interests during court and trustee hearings, working to make sure that your petition goes through and that you get an approved repayment plan that give you the best chance at success
- Guiding you throughout the whole bankruptcy process, including being at your side if issues arise during the repayment plan period, making sure that your bankruptcy process is completed, and making sure you receive a discharge from the court
If you are facing problems with managing your debts, get a free and confidential consultation with a Vermont Chapter 13 bankruptcy attorney from Lynch Legal Services, PLLC today We'll discuss how a Chapter 13 bankruptcy can offer you a way to get your finances under control and start yourself on the path toward financial health.