Making the decision to file for Chapter 13 bankruptcy is not easy. This 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 constant letters and calls from debt collectors stop. In Chapter 13 bankruptcy, you enter into an agreement to repay your debts in part or in full over three to five years. Here are four important things to know if you’re almost ready to file.
1. Understanding Documents
Chapter 13 bankruptcy paperwork is complex and can be overwhelming. From the outset, it’s important to be accurate, honest, and thorough when you fill out all forms. The average document, including petitions, schedules, and payment plans, can be more than 40 pages. You will need to provide detailed information about your assets, debts, expenses, income and full financial history. If anything is left behind, you will face problems later and be required to complete additional paperwork and pay more fees. More importantly, if you leave the creditor, you probably won’t pay off that debt, and your case may be dropped if you can’t make an amendment.
2. Definition of Domestic Tax and Supporting Debt
Under Chapter 13 bankruptcy, you will be required to pay any taxes you owe from the previous three years, in addition to any taxes owed on which the government has placed a lien on your property. You will have the option to distribute those payments over time, and the only way to pay off the tax debt is to request an individual evaluation of your specific situation. For household support obligation debt, which includes alimony and child support, you are required to keep those payments current or your plan will be cancelled.
3. Understand the Importance of Your Budget
To be successful, you must create and stick to a realistic budget. If your budget can’t consistently support your payment plan, then you need to consider other non-bankruptcy options. To calculate your budget, remember that your ability to make payments is based on the amount you earn. That disposable income is what you have to pay back into your plan each month. If you stay committed to your budget for the next three to five years, you can expect to be successful.
4. Understand the Consequences of Missing Payments
Finally, it is important to know that if for reasons of hardship you are unable to complete your payment plan and you are behind on payments, your bankruptcy trustee may change your plan, or a judge may allow you to discharge all debts based on your distress. Examples of adversity include 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.