U.S. federal law offers two principal ways for individuals to declare bankruptcy and deal with debt in ways that do not completely ruin their finances. A Chapter 7 bankruptcy is available to people with lower income as well as other qualifying factors. Another option with fewer limitations involves going through a Chapter 13 bankruptcy.
Here, the Ohio Chapter 13 lawyers with the Calig Law Firm present some of the benefits of and requirements for pursuing a Chapter 13 bankruptcy. We are also available to provide free, no-obligation consultations on filing a Chapter 7 bankruptcy petition. Appointments at our Columbus offices are available by calling (614) 252-2300 or using this online contact form.
Any person whose total monthly debt payment exceeds his or her total monthly income on a consistent basis should consider filing for an individual Chapter 13 bankruptcy. A married couple has the ability to file a bankruptcy jointly if the individuals share the same or have separate debts.
Monthly debts are separate from usual expenses for daily living. For instance, groceries, utilities, and gas are not considered debts under bankruptcy law. A home mortgage, a car loan, and a credit card balance are among the debts that can be addressed by declaring bankruptcy.
Chapter 13 is available to people who receive regular income. It is not an option for corporations or for people who, in 2017, carried unsecured debt in excess of $384,725 and secured debt in excess of $1,184,200. “Unsecured” means the debt has no collateral. Signature loans and credit card charges are unsecured. Secured debts include home mortgages and car loans.
Filing a Chapter 13 bankruptcy petition stops all debt collection actions, including property foreclosures if the paperwork clears in time. Securing this kind of bankruptcy also gives creditors an incentive to negotiate and accept extended repayment plans, settlements for partial value, or even account forgiveness after a period of reduced payments.
Unlike a Chapter 7 bankruptcy, a Chapter 13 filing allows the debtor to keep items put up as collateral as long as payments continue. Surrendering one’s car, home, or other property is typical for many people who pursue Chapter 7 bankruptcy if payments are not current.
The benefits of Chapter 13 for a Columbus, Ohio, resident extend only so far. Debts on student loans cannot be forgiven. Neither can alimony and child support balances unless the designated recipients alert a court that they absolve the debtor from his or her obligations.
People who file for bankruptcy must stop using their credit cards. While in an active Chapter 13 bankruptcy, the individual filing must seek court approval before getting a loan. The loan must be necessary and is usually taken out in order to make a major purchase, such as a replacement automobile, a furnace, or other major repairs needed on a home.
A final consideration that needs to be taken before filing for Chapter 13 protection is that all remaining debts must be paid from disposable income. The debtor must set a weekly, biweekly, or monthly budget that indicates exactly how much he or she will spend on food, rent/mortgage, medical care, commuting, and clothes. Every cent above the total for those necessary expenses must then go to paying off creditors.
Bankruptcy filings are handled by the federal district court closest to the person seeking protection from creditors. According to the U.S. Government Courts website, the filing must include
State and federal tax returns for the previous and current year (at a minimum)
A married person must submit all of this information for his or her spouse even if the couple is not filing jointly for bankruptcy. The court will also want to see evidence of credit counseling, or it will require the person filing for bankruptcy to seek out that service.
Within 14 days of filing the Chapter 13 bankruptcy petition, the debtor must file a detailed repayment plan. Quoting the courts website, the “plan must be submitted for court approval and must provide for payments of fixed amounts to the trustee on a regular basis, typically biweekly or monthly.” The trustee is the person or organization named by the debtor to redirect disposable income to creditors in accordance with the repayment plan.
Securing approval of the Chapter 13 petition requires appearing in court and telling a trustee or a member of his or her staff about current employment, if the current payment plan presented to the court is feasible, if the individual anticipates a change in finances, and a general review of current assets owned.
Chapter 13 protection generally lasts three to five years for a person whose monthly income falls below the median for the state in which he or she lives. A person with higher income must remain in Chapter 13 for five years.
An experienced Ohio bankruptcy lawyer can help a client prepare court filings, assess the value of assets, project the growth of debts due to interest and penalties, and put together a personal budget and repayment plan. A bankruptcy attorney can also prepare a client for the required court hearing, appear with the client before the trustee, and represent the client in negotiations with creditors.