Making the decision to file for Chapter 13 bankruptcy isn't easy. It will impact your credit, your personal and professional reputation, and even your self-image. On the other hand, it can greatly improve your quality of life in the short term as the letters and persistent calls from debt collectors stop. In Chapter 13 bankruptcy, you enter into an agreement to repay your debts in part or in full over a period of three to five years. Here are four essential things to know if you're almost ready to file.
1. Understand the paperwork
Chapter 13 bankruptcy paperwork is complex and can be overwhelming. Right from the start, it's important to be precise, honest, and thorough when filling out all the forms. On average, the documents, including the petition, timelines, and repayment plan, can exceed 40 pages. 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 issues later and have to complete additional paperwork and pay even more fees. More importantly, if you omit a creditor, you might not get that debt canceled, and your case might be rejected if you are unable to make a change.
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 any tax debts for which the government has filed a lien on your property. You will have the flexibility to spread these payments over time, and the only way to pay off your tax debts is to request an individual assessment of your specific situation. When it comes to domestic support debts, which include alimony and child support, you are required to keep these payments up to date or your plan will be rejected.
3. Understand 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, you should consider other non-bankruptcy options. When calculating 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 need to pay back into your plan each month. If you stick to your budget over the next three to five years, you can expect to be successful.
4. Understand the consequences of missed payments
Finally, it is important to know that if, for reasons of difficulty, you are unable to complete your repayment plan and you fall behind on payments, your bankruptcy trustee may make changes to your plan, or the judge might allow you to release all your payments. the debts according to your difficulties. Examples of what can be considered a hardship are the loss of your job due to circumstances beyond your control or illness.
Armed with these important tips, your Chapter 13 bankruptcy should go smoothly.