Making the decision to file for Chapter 13 bankruptcy is not easy. It will impact 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 persistent letters and calls from debt collectors stop. In Chapter 13 bankruptcy, you make an agreement to pay back your debts in part or full over a period of three to five years. Here are four critical things to know if you're nearly ready to file.
1. Understanding the Paperwork
Chapter 13 bankruptcy paperwork is complex and can be overwhelming. From the beginning, it's important to be accurate, honest, and thorough as you complete all of the forms. On average, the paperwork, including the petition, schedules, and repayment plan, can be over 40 pages. You will need to provide detailed information on your assets, debts, expenses, income, and full financial history. If anything is left out, you will encounter problems later on and be required to complete additional paperwork and pay even more fees. More importantly, if you leave out a creditor, you might not get that debt discharged, and your case could be dismissed if you're not able to make an amendment.
2. Understanding Tax and Domestic Support Debts
Under a Chapter 13 bankruptcy, you will be required to pay any tax debts you have from the previous three years, in addition to all tax debts where the government has filed a lien on your property. You will have the option to distribute those payments over time, and the only way to get tax debts discharged is to request an individual evaluation of your specific 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 dismissed.
3. Understanding the Importance of Your Budget
In order to succeed, you must create and stick to a realistic budget. If your budget can't consistently support your repayment plan, then you need to contemplate other non-bankruptcy options. To calculate your budget, remember that your ability to make payments is based on the amount of your disposable income. That disposable income is what you'll be required to repay into your plan each month. If you stay committed to your budget over the next three to five years, then you can expect to succeed.
4. Understanding the Consequences of Missed Payments
Finally, it's important to know that if for reasons of hardship you are unable to finish your repayment plan and you fall behind on payments, the trustee of your bankruptcy can make modifications to your plan, or the judge could 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 outside of your control or suffering from an illness.
Armed with these important tips, your Chapter 13 bankruptcy should proceed smoothly.