Chapter 13 is the part of the bankruptcy code that allows some people to restructure their debts. This contrasts with the Chapter 7 process where the debtor must liquidate their assets to pay as much to their creditors as possible.
Especially if you're trying to hold onto a major asset like a mortgaged house, Chapter 13 is very appealing. However, a Chapter 13 bankruptcy lawyer may need to help you ward off a few other common problems. Before you file, you'll want to prepare to address these three frequent issues.
Few people have perfectly steady incomes. Minor fluctuations won't bother a bankruptcy judge. The court may have concerns if your income fluctuates significantly. Income is important in Chapter 13 because the process depends on the debtor's ability to pay an adjusted amount.
A Chapter 13 bankruptcy law group will work hard to document a client's income. If the fluctuations are seasonal, you can present the court with several years of pay stubs to show the seasonality. Someone who has a variable income because of contracting work can show a few years of tax returns to demonstrate that they at least maintain an income baseline.
The court frequently requires creditors to take a haircut on what the debtor owes. One of the reasons for this is that asset values are rarely static. Particularly, home values can fluctuate significantly over decades. If the house's value is significantly less compared to what's left on the loan, a Chapter 13 bankruptcy attorney may ask the court to discharge the debt entirely.
Understandably, a creditor might have a different opinion about the asset's value. They may cite different market data to show that the haircut should be so harsh.
Compared to the Chapter 7 process, qualifying for Chapter 13 is tough. Foremost, you need to show that you have enough income to pay a reduced amount. The court doesn't want to drag out the process if a debtor can't pay, and the judge may dismiss the case and tell the debtor to pursue Chapter 7 liquidation instead.
Conversely, the judge or a creditor might assert that the debtor can afford to pay in full. A Chapter 13 law firm has to make a somewhat narrow case that the client can pay but needs some financial breathing room.
You will also need to present a plan for restructuring your payments. The judge has to ensure that the plan protects the creditor's rights.
Reach out to a Chapter 13 bankruptcy lawyer near you to learn more.