When debt becomes overwhelming, bankruptcy offers a legal path forward. The law provides a tool for structured relief for managing or eliminating debt. Each chapter of bankruptcy has specific criteria; Chapter 13 is for those with a steady income.
An experienced bankruptcy attorney can explain the specifics of bankruptcy and which category best fits the filer’s situation. A knowledgeable guide is important as South Carolina’s bankruptcy rules may differ from federal guidelines. Filing requirements can be tricky, including meeting deadlines for financial disclosures and answering the court’s questions.
Why Choose Chapter 13 Bankruptcy?
Individuals seeking bankruptcy protection generally have two options, Chapter 13 and Chapter 7. Those with a source of income and who can pay off some of their debt often opt for Chapter 13 because it does not require liquidation (sale) of belongings or assets, as Chapter 7 does.
Chapter 13 involves repaying some debt over three to five years. This can prevent foreclosure on a home, catch up on missed car payments or mortgage payments, and keep valuable property. Some debt cannot be discharged by bankruptcy, including most student loans, child support or alimony, and court judgements.
Qualifying for Chapter 13 Bankruptcy
Each bankruptcy chapter requires the filer to meet specific conditions. For Chapter 13, those include:
- Regular income. The petitioner must have a steady source of income to make required monthly payments. The source of income can be employment, retirement income, disability payments, or rental income.
- Debt limits. All debt must fall within a specific range. Recently, those filing Chapter 13 may not have more than $1,580,125 in secured debt or $526,700 in unsecured debt (amounts are adjusted annually). Secured debts are those with collateral, like a car loan. Unsecured debt includes medical bills and credit card debt. Excessive debt may require an individual to file under Chapter 11 bankruptcy instead.
- Tax filings. Income taxes must be paid for the previous four years. Proof of up-to-date tax payments are required.
- Credit counseling. Each bankruptcy petitioner is required to complete an approved credit counseling course. Proof of satisfactory completion is required. Courses may be taken online.
- Prior bankruptcy history. There are specific rules for refiling bankruptcy (second or subsequent time). For instance, a Chapter 7 bankruptcy was completed and a subsequent Chapter 13 bankruptcy is planned, the court requires at least a four year wait from the Chapter 7 filing. If filing Chapter 7 is desired after successfully completing a previous Chapter 7 bankruptcy, the required wait time is eight years from the first petition for Chapter 7.
Steps in the Bankruptcy Process
After filing Chapter 13 with the U.S. Bankruptcy Court in South Carolina, these are the steps it takes:
- Automatic stay. An automatic stay goes into effect immediately upon filing Chapter 13. This stops foreclosure proceedings, lawsuits, creditor phone calls, and wage garnishments.
- Repayment plan. The court appoints a trustee to administer each case. The filer must develop and propose a repayment plan for them to review. They will calculate whether unsecured creditors would receive the same amount under a Chapter 7 filing. Petitioners may choose three- or five-year plans to repay creditors, depending upon their income and the amount owed.
- Plan confirmation hearing. Creditors can address the bankruptcy trustee at this meeting, which also includes trustee questions about the petitioner’s finances.
- Priority payments. Chapter 13 can address tax debt, usually allowing payments to be made at 0 percent interest. Other unsecured debt (loans, medical bills, and credit cards) can often be paid off at a fraction of the total amount owed.
- Discharge. After the payments have successfully been made, the petitioner gets a discharge of remaining balances on eligible debts.
Finding a Path Out of Debt
Bankruptcy is a legitimate path to take when one’s financial burden becomes unbearable. An experienced bankruptcy attorney from Lam Law Firm can explain and provide guidance through the available options. Having help navigating the court process reduces stress and provides a buffer against making errors. Call for a consultation today.
