Making the decision to file Chapter 13 bankruptcy is not easy. It will affect your credit, your personal and business reputation, and even your own image. On the other hand, it can greatly improve your quality of life in the short term as the persistent letters and calls from debt collectors cease. In Chapter 13 bankruptcy, you make an agreement to pay some or all of your debts over a period of three to five years. Here are four critical things to know if you’re almost ready to file.
1. Understand the paperwork
Chapter 13 bankruptcy paperwork is complex and can be overwhelming. From the beginning, it is important to be accurate, honest and thorough when completing all forms. On average, the documentation, including the petition, schedules, and payment plan, can be more than 40 pages long. You will need to provide detailed information about your assets, debts, expenses, income, and complete financial history. If something is left out, you will run into problems later and be required to fill out additional paperwork and pay even more fees. More importantly, if you shut out a creditor, you may not get that debt discharged, and your case could be dismissed if you can’t make an amendment.
2. Understanding Tax Debts and Domestic Support
Under a Chapter 13 bankruptcy, you will be required to pay any tax debts you owe from the previous three years, in addition to any tax debts that the government has filed a lien against your property. You will have the option to spread those payments out over time, and the only way to pay off tax debts is to request an individual assessment of your specific situation. As for domestic support obligation debts, which include alimony and child support, you must keep those payments current or your plan will be terminated.
3. Understand the importance of your budget
To be successful, you must create and stick to a realistic budget. If your budget cannot consistently support your payment plan, then you should consider options other than bankruptcy. To calculate your budget, remember that your ability to pay is based on the amount of your disposable income. That disposable income is what you’ll need to pay into your plan each month. If you stay committed to your budget for the next three to five years, then you can expect to be successful.
4. Understand the consequences of late payments
Finally, it is important to know that if you are unable to complete your payment plan due to hardship and fall behind in your payments, your bankruptcy trustee may make modifications to your plan, or the judge may allow you to discharge all of your debts based on your hardship. . Examples of what qualifies as a hardship are losing your job due to circumstances beyond your control or becoming ill.
Armed with these important tips, your Chapter 13 bankruptcy should proceed smoothly.