Four Important Things to Know About Chapter 13 Bankruptcy
Deciding whether to file for Chapter 13 bankruptcy is not easy. It will affect your credit, your personal and business reputation, and even your self-image. On the other hand, it can greatly improve your quality of life in the short term, as the pushy letters and calls from debt collectors stop. In Chapter 13 bankruptcy, you enter into an agreement to pay off all or part of your debts over a period of three to five years. Here are four important things to know if you’re almost ready to file.
1. Understanding the documents
Chapter 13 bankruptcy paperwork is complicated and can be overwhelming. From the outset, it is important to be accurate, honest and thorough while completing all forms. On average, the documents, including the petition, schedules and repayment plan, can be over 40 pages. You will need to provide detailed information about your assets, debts, expenses, income and a complete financial history. If something is left out, you will run into problems later and have to fill out additional documents and pay even more fees. More importantly, if you leave a creditor, that debt may not be discharged and your case may be dismissed if you cannot make amends.
2. Understanding tax and alimony debts
Under Chapter 13 bankruptcy, you will be required to pay all tax liabilities you owe from the previous three years, in addition to any tax liabilities when the government has placed a lien on your property. You will be able to spread these payments over time and the only way to get tax liability is to ask for an individual assessment of your particular situation. As for domestic support obligation debts, which include alimony and child support, you are required to keep those payments current or your plan will be rejected.
3. Understanding the importance of your budget
To be successful, you need to create and stick to a realistic budget. If your budget cannot consistently support your repayment plan, then you should consider other options other than bankruptcy. To calculate your budget, remember that your ability to make payments is based on the amount of your disposable income. This disposable income is what you will have to pay into your plan each month. If you stay committed to your budget for the next three to five years, you can expect to succeed.
4. Understanding the consequences of missed payments
Finally, it’s important to know that if you’re unable to complete your repayment plan due to hardship and fall behind on your payments, your bankruptcy trustee may make changes to your plan or the judge may allow you to discharge all of your debts based on of your difficulties. Examples of what qualifies as a hardship are losing your job due to circumstances beyond your control or suffering from an illness.
Armed with these important tips, your Chapter 13 bankruptcy should go smoothly.
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