CHAPTER 13 BANKRUPTCY BASICS IN SIMPLE TERMS
By: Wesley W. Scott
Many Minnesotans are not aware that the government offers a legally binding debt consolidation plan of their own - it's called a Chapter 13 Bankruptcy.
What is a Chapter 13 Bankruptcy? It's a government sponsored debt consolidation plan where you make payments back to your creditors, based on what you can afford and at the end of a fixed period of time (a minimum of 3-5 years max) whoever does not get paid off gets wiped out, tax free, forever!
CHAPTER 13 MYTH
In Chapter 13 Bankruptcy, I have to pay everyone back right? WRONG! Here's an example to illustrate how Chapter 13 Bankruptcy works. Let’s assume Susan has 100k in credit card debt. She works at a job that pays her 60k a year. Susan meets with an experienced attorney who does a thoughtful analysis of her income and expenses with Susan present. After looking at Susan’s budget it is determined she could afford to pay $200.00 per month for 36 months (she is under the median income because she has a son who is 5 years old that lives with her).
Susan will pay $200.00 a month to a chapter 13 trustee who disburses this money to her creditors based upon the plan we set up. Basically, most creditors in the same class get paid pro rata (based on the size of their claim). However, at the end of 36 months, Susan will have only paid $7,200.00 not near enough to pay her 100k in credit card debt in full. What happens to the balance owed? $92,800.00 gets wiped out, tax free, forever!
Now that is a plan worth getting excited about. While Susan is in the chapter 13 bankruptcy, no creditor can call, write, or sue her or do anything to collect on those debts. After the discharge is received, the unpaid creditors are barred from collecting from her, for life!
The Chapter 13 Process
1) Free Consultation
The first step is a big one but then it gets easier. If it is decided that doing a Chapter 13 Bankruptcy makes sense for you, our MN Bankruptcy Attorney will instruct you to stop paying unsecured debt and will tell you what secured debts to pay and not to pay.
2) Review And Sign Appointment
Remember when I said that you and our Bankruptcy Attorney will determine your payment amount? This is where that happens. The review and sign appointment is designed to flesh out your assets and debts and to make sure your budget is correct and the payment is something you can afford to pay.
Most of the time, these appointments last 2 hours. Time well spent in constructing a solution to a problems that has nagged you for a long time.
3) 341 Meeting
The Chapter 13 Bankruptcy 341 Meeting is focused on your budget. Are your income and expenses correct? Can you afford to pay more? Can you afford to pay what you propose to pay? Your attorney is with you at this meeting. You have been well prepared and you feel confident.
4) Confirmation Hearing
The confirmation hearing is where the bankruptcy court approves your plan. Attendance at this hearing is rarely required. The vast majority of plans get approved without anyone attending this hearing. We tell our clients, don’t even put it on your calendar.
Once your Chapter 13 plan is approved, you have a legally binding plan. The debtor and all the creditors are bound to comply with the terms of the plan.
Once the terms of your plan have been satisfied, you get a discharge. Once you have been discharged, any remaining debt gets wiped out, tax free, forever! You hear what I am clucking big chicken? This is amazing stuff.
Chapter 13 Bankruptcy is the very reason I feel terrible for any Minnesotan suffering from overwhelming debt who is laboring through a traditional debt consolidation plan. The chapter 13 plan is far superior to any traditional debt consolidation plan on the market.
What is really upsetting is to see people suffer in a debt consolidation plan for years only to end up in a Chapter 13 Bankruptcy anyway. I think about all of the time, money, and misery that could have been saved. I am not a big believer in suffering needlessly.
CONTACT A MN BANKRUPTCY ATTORNEY
If you have any questions about Chapter 13 Bankruptcy or just would like to know more please contact one of our numerous Minnesota locations near you , we'd be happy to help.