Obtaining Debt Relief Through Chapter 13 Bankruptcy
The term bankruptcy is derived from the words “bancus” and “ruptus”, which mean “trademan’s counter” and “broken”, respectively. The concept of bankruptcy is believed to be 400 years old or more. In fact, even the Bible shows a recorded description of the concept of bankruptcy in Deuteronomy 15:1-2. However, the bankruptcy that most people know today as a form of debt relief is already very different from the concept of bankruptcy that existed during the early 1800.
Bankruptcy has gone through major revolutions since the biblical times. In the United States, bankruptcy laws were established under the Bankruptcy Code found on Title 11 of the U.S. Code. These laws were established to give debtors a “new financial start” either through liquidation (Chapter 7) or reorganization (Chapter 13). Chapter 7 bankruptcy is the common form of bankruptcy available to consumers. Most debtors applying for bankruptcy choose “liquidation” or ”straight” bankruptcy (Chapter 7) because it is the easiest and fastest to apply for. “Personal reorganization” (Chapter 13), on the other hand, is rarely chosen by individuals. Nevertheless, it is still interesting to know what Chapter 13 bankruptcy is all about.
Chapter 13 bankruptcy is a form of debt relief that requires you to use your income to pay back your debt. Unlike Chapter 7 wherein you have to surrender some assets to repay a debt, Chapter 13 allows you to settle all your liabilities without having to give up your home, your car, or other valuable assets. Instead, you just have to prove to the court that you have an adequate income and that you can afford to settle your payment obligations in accordance with the designed repayment plan by the court. This option is particularly good for most debtors with a steady source of income. Hence, it is also known by the name “wage earner bankruptcy”.
The road towards a clean financial slate through Chapter 13 bankruptcy can be quite a struggle due to eligibility issues and debt discharge requirements. But, being aware of all these can make the job a whole lot easier. So, who are the people who can file for wage earner bankruptcy? And what are the debt discharge requirements for it?
In order to qualify for wage earner bankruptcy, you must show the bankruptcy court that you have sufficient disposable income to meet your repayment obligations. Your plan must repay certain debts in full; otherwise, the court will not approve it and allow you to proceed. To fund a Chapter 13 plan, you can use the following as your sources of income: regular salary, self-employment salary, seasonal work salary, sales commissions from other work, Social Security benefits, unemployment benefits, strike benefits, and other job-related benefits and bonuses, pension payments, royalties and rents, disability or workers' compensation benefits, public benefits (welfare payments), and proceeds from selling a personal property (such as a business). If you’re married, you can use your spouse’s salary as a source of income.
Aside from a sufficient source of income, your debts must as well not be too high so you can be eligible for Chapter 13. You will be disqualified if your secured debts go beyond $1,081,400, although this amount may still be adjusted based on inflation. Also, you must prove to the court that you are current on your income tax filings. You must submit documents to the court showing that you filed your federal and state income tax returns for the four tax years prior to the filing of bankruptcy. If you need more time to get your current on your taxes, the court can delay the proceedings.
There are certain things that the bankruptcy court will require filers to do to ensure that they will not appear before them again. First, the court will require filers to undergo a pre-filing credit counseling. This counseling class is mandatory. It is like a preparatory course that will make you aware of Chapter 13 bankruptcy. The court will also require you to attend financial management courses. This is self-explanatory. And lastly, you will be asked to submit various certificates to qualify for debt discharge. For example, you may be asked to present a certificate that shows that you’re either current or not current with alimony, child support payments, etc.
The whole process of applying for Chapter 13 bankruptcy can be a hassle. But, if you understand the basics, the road to a clean financial slate becomes less difficult.
