Chapter 13 Bankruptcy And Wage Earner Plans
Most Americans have some level of debt. This might be in the form of a mortgage, a student loan, or credit cards that are difficult to pay down. In times of hardship, trying to manage debt in addition to daily expenses may be the weight that tips the scale and makes your monthly payment impossible to float.
For working individuals that are in over their head, Chapter 13 is the recommended course of action. Through Chapter 13, individuals have the opportunity to restructure their debt, even have some of it forgiven, formulate a payment plan that allows them to pay expenses over the course of 3-5 years.
However, Chapter 13 isn’t for everyone and not all individuals qualify. Below we have made a simple list in plain English terms to help you determine if Chapter 13 might be right for you.
Chapter 13 bankruptcy is known as a “wage earners” plan. This, along with a few other factors outlined below, determines whether or not you are eligible to file.
- You Must Earn a Wage
When you file for Chapter 13 bankruptcy, you are entering a repayment plan. For the bankruptcy courts to trust your participation in regular debt repayment installments, you must have proof of a steady income. Without meeting this qualification, you will not be eligible and instead would file for Chapter 7 Bankruptcy.
- You Must Be Under the Debt Threshold
A debt threshold is the maximum level of debt you can have while still remaining eligible for filing Chapter 13. Not all debt, however, is equal. As such, there is a different threshold for each kind of debt.
- Secured Debt Threshold: $1,257,850
This category of debt is any kind of loan that has collateral should you default. Common examples include mortgages and car loans.
- Unsecured Debt Threshold: $419,275
On the other end, this type of debt is not backed by collateral. Common examples here include student loans, medical bills, and credit card debt.
- You Must Be an Individual
Chapter 7 and Chapter 13 are both bankruptcy plans that are made for individual filing only. This means if you are a corporation or even a sole proprietor, you will not be eligible to file.
In the bankruptcy code, there are some categories of debt that cannot be forgiven unless you prove repaying those debts would cause undue hardship. To do this, you must prove that your situation is unmanageably challenging, will likely last the remainder of your working years, and cause you to live in poverty.
Debts in this category include, but are not limited to:
- Taxes (income, retirement accounts, and many others)
- Money owed to government agencies through penalties or fines
- Personal injury debt resulting from a drunk driving accident
- Criminal and Court fees
- Attorney’s fees resulting from child custody battles
- Child support and Alimony
- Student loans
No matter what type of bankruptcy you are trying to file, debts that fall into these categories usually have to be repaid over time. While filing a Chapter 13 case won’t forgive your obligations to repay these debts, they can ultimately be worked into a repayment plan to make the past due amounts more manageable.
Ohio Bankruptcy Exemptions
When you file for Chapter 13, one of the largest upsides is that it aims to allow you to keep your property. Part of this perk is through the use of exemptions: portions of your property and belongings that are exempt from the bankruptcy process.
While the following list is non-exhaustive and there are several more options potentially available to individuals, it reflects some of the most common, and helpful, exemptions that can be applied.
$145,425 in home equity of you place of residence is qualified for a homestead exemption
- Personal Property
There are several divisions of personal property and each has their own exemption amount. Those which are of most concern to bankruptcy filers are the $13,400 household goods exemption, $,1,700 jewelry exemption, and the $4,000 motor vehicle exemption.
Wages are exempt, but only to a point. The current standard is that either 30 times the minimum federal hourly wage or 75% of your disposable income is exempt. Whichever is greater is the exemption that takes precedence.
In this category you will find IRAs, Roth IRAs, private pensions, and tax exempt retirement accounts such as 401(k), 403(b), and profit-sharing
Note for couples filing jointly that both have interest in their possessions, these exemptions apply to both individuals. This process is known as “doubling” and effectively doubles the exemption amount for which your household qualifies.
How do Payments Work?
Chapter 13 in Ohio works very similarly to bankruptcy proceedings around the nation. Central to this process is the development of a payment plan. This plan encopasses all the debt you must repay and outlines what you will owe on a monthly basis. Your monthly dues are a representation of all your debts bundled together, meaning you will only need to make a single payment to your Chapter 13 trustee.
10 Things To Know When Filing Bankruptcy Chapter 13
What to know when filing for Bankruptcy Chapter 13?
- Your first Trustee payment must be made in the first 30 days.
- If you miss payments, the Trustee may file a motion to dismiss your case.
- Notify us immediately if you think you will miss a payment and we can request a temporary moratorium. If a moratorium is granted, the length of your plan may be extended.
- Your employer will receive a wage order from the Bankruptcy Court directing it to deduct plan payments from your paycheck. If your employer fails to do so, you are responsible for making any payments directly to the Trustee at the address provided in the letter we send to you after your case is filed.
- Direct payments to the Trustee must be in the form of a cashier check or money order.
- Keep us informed of any changes to your address.
- Make sure you understand your Plan. You can review your Plan monthly through the National Data Center website: https://www.13datacenter.com/
- All debts must be paid through the Plan. If you pay any pre-filing debt directly, the payment will not affect your obligation under the Plan.
- All income of all dependents and residents in your home must be listed in your schedules. This includes support payments and rental income.
- Your Plan may be required to last up to five years (60 months).
Your Bankruptcy Attorney
I became a bankruptcy attorney because I had to file for bankruptcy, too. It's a personal passion of mind to help people get to a better place in their life because I know what it feels like to be suffocating under a mountain of crippling debt with nowhere else to turn.
As an attorney, I also know the nuances of law and can help people get the most out of their filing.
As someone who has been on both sides of the bankruptcy process, I am dedicated to helping individuals regain control of their debt. Contact us at 216-241-2510 to speak with a bankruptcy expert in Cleveland, Ohio.
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