Chapter 13 bankruptcy is for when you’re struggling to pay back secured debt such as a car or mortgage and you intend to keep that property. This form of bankruptcy is often turned to by people who fall too far behind on their mortgage and/or car payments and can’t get caught up on their own. It reorganizes your cash flow and provides relief from creditors by creating a plan to repay over several years a percentage of (or all of) the debt owed.

How it works

When you declare Chapter 13 bankruptcy in order to keep the property you owe money on, a repayment plan is created and a bankruptcy trustee is appointed. Payment plans are spread out over the course of three to five years. The specific length of your payment plan is determined by how much excess income you’ll receive and how long it will take you to pay back the agreed-upon amount.

After your attorney files your case and a plan is created, you must continue to pay your normal mortgage and car payments. You must also make an additional payment based on your excess income to the bankruptcy trustee. That additional payment first pays back the missed payments on the secured debt and priority debts, such as recent taxes. Any remaining money from the plan payment is then used to pay back some of the unsecured debt such as credit cards or personal loans. The remaining unsecured debt is then discharged much like it would be in a Chapter 7 bankruptcy, leaving you no longer obligated to pay it. As long you stay current on your mortgage/car payments and plan payments, you retain all property within the plan.

One big advantage to choosing Chapter 13 bankruptcy is that interest doesn’t accrue on the debt. That means that your payments will be much more manageable than they were before you filed for bankruptcy.

Court filing fees for all bankruptcy cases are $338 for Chapter 7 and $313 for Chapter 13. Fees for attorney’s services depend on the complexity of your individual circumstances and can be structured in different ways.

In almost all cases, the answer is a hard no for several reasons:

1. Although “debt relief” or “debt consolidation” companies advertise that they can negotiate your debt down, it usually doesn’t work because the individuals or companies you owe money to are under no obligation to accept any deals they’re offered.
2. Debt consolidation can be expensive because the company you hire usually charges you a hefty monthly fee.
3. In many cases, these plans destroy your credit much worse than a bankruptcy case and for a longer period of time.
4. Often these companies will try to alleviate your debt by making you take out a home equity loan that secures itself against your home.
5. Even when these companies negotiate your debt down, you must pay tax on whatever debt is forgiven — meaning that the more successful your debt consolidation company is, the more tax you will still need to pay. Even if you decided to file for bankruptcy afterwards, those taxes would not be dischargeable and would need to be paid. For example, if you owe $50,000 and they negotiate down your debts to $10,000, you will receive a 1099 tax form where you have to claim the $40,000 as unearned income. On top of paying the non-dischargeable taxes on this amount, you will also have to pay the fees that the company charges and still pay on the amount left over.

In bankruptcy, all unsecured debt disappears without any tax obligations on the discharged amount. You only pay attorney and court filing fees, which together are usually lower than what you end up paying if you choose debt consolidation.

Not necessarily. Bankruptcies can be filed by an individual or jointly by a married couple. But if only one person files, their spouse is still responsible for paying any debt for which they are listed as a debtor. Filing individually can be advantageous if all the debt is in one spouse’s name only; if it’s in both spouses’ names, then it would cost significantly less to file together than to file separately at different times.

Yes, a bankruptcy will remain on your credit report for seven to 10 years. But because bankruptcy is only one of many factors that affect your credit, in many cases your credit score will go up dramatically within just a few years. After two years of rebuilding credit following bankruptcy filing with RQP Law, most of our clients’ credit scores are close to 600 and can even be 700 or higher. Once we perform a financial analysis, we can give you an estimate of how your score might look after a case is filed.

There are always advantages and disadvantages. After filing for bankruptcy, your ability to get credit will be lower. But in most cases, eliminating debt through bankruptcy will allow you to create a better budget that doesn’t require you to use credit for everyday expenses. Because you’ll be able to pay off your bills every month, it will be much easier to obtain credit in the long term because your credit score will reflect those repeated on-time payments.

The ability for people to discover your bankruptcy is limited. Debtor privacy in Pennsylvania bankruptcy cases is protected, so only a credit check will reveal your bankruptcy. Although court proceedings are publicly accessible, someone would need to specifically look in the bankruptcy courts for your case. The only parties notified of your filing are your creditors.

The law specifies what length of time must pass before you can file for bankruptcy again, and it depends on what type of bankruptcy your previous case was. You also may not have a previous bankruptcy that was dismissed with prejudice. The best way to determine if you’re eligible to file again is to schedule a free consultation with one of our attorneys.

Generally speaking, to file for bankruptcy you’ll need to provide your attorney with:

• Proof of income for the six-month period before you file
• Proof of home, auto, or other insurance related to the property in question
• Copies of medical bills and any other debts not listed on a standard credit report
• Copies of your bank statements
• Tax returns for the two-year period before you file

As soon as you provide all requested information and complete a government-required credit counseling course, your attorney may file for bankruptcy.

There is no limit! If you use a credit card for a major purchase such as large appliances, expensive electronics, or furniture sets within a month or so before filing for bankruptcy, that amount may be excluded. Otherwise, all other debts, including credit card use for essential items like gasoline and groceries, generally should be dischargeable regardless of the amount.

For most debtors, student loans are non-dischargeable except in very specific cases. (This may change pending the outcome of court cases, government actions and legislation currently being debated and pursued). But if you took out regular personal loans through your bank and used them to pay for school expenses, it’s possible to classify those loans as dischargeable debt.

In bankruptcy law, a “means test” is used to determine if you have too much income to declare bankruptcy. The means test is somewhat like a tax return that determines your eligibility. It’s based on the average cost of living expenses and income for the county where you live and also takes into consideration the number of dependents you have, your spouse’s financial position, the number and age of any vehicles you own, your medical expenses and other key factors.

About four to six weeks after you file for bankruptcy, the appointed bankruptcy trustee will schedule what’s known as a “341 meeting” or “meeting of the creditors.” At the meeting, the trustee will ask questions regarding your debt and examine the petition your attorney has filed with the court. These questions will require full disclosure about your income, expenses and assets.