Eligible for Chapter 13? Here are the steps to find out
Image source: Flickr User Matthew Faltz
If you are struggling to pay your bills and are looking for a solution, bankruptcy may have been an option you've considered, but do you know what this really means and which type may be best for you? For individuals, you can file Chapter 7, Chapter 11 or Chapter 13. Chapter 11 is less common for personal debts. We recommend Chapter 7 or 13 for most of our clients and more than half decide on Chapter 13. But is this chapter right for you and are you eligible?
#1 Do you have enough disposable income?
You may think that filing bankruptcy is for those that aren't making enough income. This isn't necessarily true, especially for those considering Chapter 13. This type of bankruptcy is for those earning a wage but just not enough of one to service all their debts without a little breathing room. The bankruptcy court wants to know that you have enough disposable income (income after living costs) to service your repayment plan.
#2 Do you have excessive debts?
If you're considering bankruptcy, you may definitely consider your debts to be excessive, but the court's definition is different from yours and mine. You must have no more than $1.15 million in secured debts and $383,000 in unsecured debts to qualify for Chapter 13. Secured debt is stuff like collateralized loans, such as a mortgage or a car loan. If you're financing a $2 million mansion and struggling to make payments, you can still file bankruptcy, but it will need to be Chapter 11 rather than 13.
#3 Are you current on your tax returns?
By this we mean, have you filed all of your tax returns – not, have you paid all your taxes due. You have to show that your tax filings are current for federal and any applicable state taxes. You can have balances owing, just as long as the returns themselves were filed. If you haven't filed those tax returns, you still have an option. You'll need to pull out your W2s and receipts and get the missing tax returns filed prior to submitting your bankruptcy petition.
#4 Are your debts primarily business debts?
If you own a business, even a small sole proprietorship, you can't file Chapter 13 for your business. For bankruptcy cases for businesses, Chapter 11 is the allowable course of action. However, if you have business debts that you personally guaranteed and are liable for, but can't pay, these can be included in a Chapter 13. If you're unsure if what you owe is allowed under a Chapter 13, a reputable North Carolina bankruptcy attorney can advise you on this.
#5 Can you afford to pay back some of your debts in full?
Bankruptcy is a solution for those struggling with bills, but to qualify for Chapter 13, you have to be able to demonstrate that you can pay back certain debts in full, given time. Repayment plans run three to five years (five years being most common) and, during this time, you will have to pay your mortgage, car note and then amounts to help catch up back balances on these debts. Over the plan, you'll have to repay your back mortgage, car payments and property taxes in full.
Often it's confusing for consumers to know exactly what bankruptcy plan is best for them, will get the most relief and will allow them to keep their assets. This is why you need the advice of the expert attorneys at the law offices of John T Orcutt. Contact us now for a completely free consultation. We'll look at your debts, assets and income, explain your options, the benefits of each and then get you started on the road to debt relief right away. Call now.