This Is What Happens to Your Debt When You File Chapter 13 Bankruptcy

We hear about bankruptcy in the news all the time. But the type we hear about most, Chapter 11, is what businesses typically use to restructure their debts.

Chapter 7 and Chapter 13 are the bankruptcy types individuals like you and I are most likely to encounter. (You can learn about Chapter 7 bankruptcy here.)

The process can get tricky fast, so keep reading to learn who’s eligible for Chapter 13 bankruptcy and how it works.

What Is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is known as a “wage earner’s plan,” because it allows working people to make a plan to repay their debt over a three- to five-year span.

While filing Chapter 13 bankruptcy may reduce or discharge much of your debt, there are a few key exceptions: alimony, child support, some taxes, federal student loans and criminal fines.

To be eligible for Chapter 13 bankruptcy, you must:

  • Have unsecured debts (credit cards, student loans, medical bills) of less than $ 394,725.
  • Have secured debts (property, vehicles) of less than $ 1,184,200.
  • Have already gone to credit counseling individually or in a group.
  • Be working with a regular income.
  • Be current on your taxes.

If you’ve filed for Chapter 13 bankruptcy in the past two years, you’re ineligible to petition for bankruptcy again.

Is Chapter 13 Bankruptcy Better Than Chapter 7?

Chapter 7 bankruptcy is often referred to as “liquidation bankruptcy.” A court-appointed trustee takes your assets and divides the funds among your creditors. You may be able to keep your home, although exemptions for property vary by state.

Chapter 7 bankruptcy is a quicker process, lasting only a few months. If you fail the Chapter 7 means test that determines your ability to pay part of your debt, you can convert your petition for bankruptcy to one for Chapter 13.

Chapter 13 is often seen as a more attractive method of filing for bankruptcy for homeowners, because it gives you a chance to save your home from foreclosure if you’re behind on your mortgage. However, you must make all mortgage payments on time during the Chapter 13 payment plan or you’ll risk losing your home.

Another key difference between Chapter 7 bankruptcy and Chapter 13 is that in the latter, your debt due to a separation or divorce may be discharged or reduced.

During your Chapter 13 payment plan, you’re not allowed to take on any new debt without court approval. Chapter 7 is not as strict.

What Happens When You File Chapter 13?

a paper form for filing bankruptcy.

You must pay a $ 235 filing fee and a $ 75 administrative fee to file for Chapter 13, which can be paid over four installments with permission from the bankruptcy court. The bankruptcy forms ask about creditors, the amounts you owe to them, your income, your property and your monthly expenses.

Even if only one spouse is filing for bankruptcy, both parties in a married couple must provide this information.

Debt collection stops once you file your petition for bankruptcy, so that an impartial trustee can be appointed and meet with your creditors to work out a repayment plan. You’ll also attend this meeting to answer questions about your finances and your debt repayment plan. Then, within 14 days of filing for bankruptcy, your repayment plan must be submitted to the court.

Attorneys fees can often be paid back over the course of the Chapter 13 payment plan.

How Chapter 13 Repayment Works

When you file Chapter 13, you make all debt payments to a trustee, who then sends the proper amounts to creditors. You don’t have to interact directly with the parties you owe money to.

Depending on your repayment plan, you’ll make fixed payments on a regular basis by payroll deduction or direct payments. These payments start within 30 days of filing for bankruptcy, even if your payment plan hasn’t yet been approved in a court hearing.

How much will you pay? Typically, all of your disposable income, with an allowance of 15% of your gross income for charitable contributions. If your monthly income is less than the state median for a family the size of yours, you’ll pay for three years; if you make above the median income, you’ll pay for five years.  

If you have past-due amounts on a home, car or other loans with collateral, you’ll be able to pay back those balances over the length of your payment plan.

Is Filing for Bankruptcy Right For You?

Deciding to file for bankruptcy is a deeply personal choice and one to make after careful consideration.

For some, debt feels like an insurmountable obstacle, for which bankruptcy provides a way through. It also stops the barrage of calls from debt collectors while you work toward paying off debt that doesn’t get discharged in the bankruptcy process.

The black mark on your credit will last up to 10 years, but a history of missed payments and a stretched credit limit look just as bad to potential creditors.

One family The Penny Hoarder spoke with found bankruptcy to be more challenging than they originally expected. Instead of having the freedom to make simple purchases, they felt trapped by the process. They eventually used a large tax refund to leave bankruptcy early.

For others, the shame that often comes with filing for bankruptcy is worth it for a fresh start.

Lisa Rowan is a senior writer at The Penny Hoarder.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

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Here’s the Skinny on Filing Bankruptcy and How it Affects Your Life

“I. Declare. Bankruptcyyyyyy!”

As Michael Scott learned in “The Office,” getting rid of debt isn’t as simple as that declaration. Wouldn’t that be nice?

Many people think of filing bankruptcy as an easy way out. But these people have never filed bankruptcy.

What Is Bankruptcy?

Bankruptcy is a legal process by which an individual, couple or corporation with significant debt is either relieved of that debt or allowed to pay it off under a specified plan.

That may sound really appealing if you’ve got debt up to your eyeballs, but realize that even after filing bankruptcy, you may still have to repay your debt.

All bankruptcy really does is give you a metaphorical fresh start with your finances. Fresh like when you were 18 and the only credit card you could qualify for had 82% interest and a $ 500 limit.

While for some people, bankruptcy is better than having their wages garnished or their homes put into foreclosure, it should be a last resort for getting rid of debt.

But if you’re out of options, bankruptcy can give you a chance to get your debt under control and get creditors and collectors off your back (and out of your bank account).

Here’s How Bankruptcy Works

The process is extremely complex, so don’t expect to go through it alone — and don’t expect it to be cheap.

First, you’ll file with the bankruptcy court in your federal judicial district. There’s at least one in every state. In most cases, this administrative process is carried out by a trustee appointed to your case.

The trustee helps you file paperwork and oversees your estate (anything you own) during the case. They’re an impartial player who can challenge creditors’ claims or yours, based on conversations with both.

Then a bankruptcy judge decides whether to discharge your debts. They could deny you for a few reasons:

  • You failed to keep or produce adequate financial records.
  • You failed to explain any loss of assets.
  • You committed a crime, e.g., perjury.
  • You failed to obey a lawful order of the bankruptcy court.
  • You hid property that would have been included in your estate.

But in general, if you were able to show your inability to repay debts, you should be granted a discharge.

If they rule in your favor, you’re released from personal responsibility for your debts, and creditors can’t take any more action to collect them.

Bankruptcy Will Trash Your Credit Score

Bankruptcy will most likely be a black mark on your credit history — one that lasts up to 10 years.

But if you’re in over your head with debt, your credit is probably already pretty marred already.

Some experts say bankruptcy won’t hurt your credit much more than a poor payment history. Just make sure filing bankruptcy is really your best option, because the aftermath is not fun.

Here’s one woman’s story of what it feels like to declare bankruptcy and how she repaired her credit afterward.

Beware Bankruptcy Fraud

Remember when you’re filing: Bankruptcy is a legal action judged in federal court. So if you try to pull one over on your judge or trustee, expect some serious consequences. Here are some major no-nos:

  • Concealing assets to avoid having to forfeit them.
  • Intentionally filing false or incomplete forms.
  • Filing multiple times using either false or real information in several jurisdictions.
  • Bribing a court-appointed trustee.

If you’re caught doing any of these you could be fined, denied discharge or face criminal charges.

Types of Bankruptcy for Individuals

Couple planning budget over laptop at home

Individuals and couples can file one of two types of bankruptcy.

Chapter 7 Bankruptcy

Chapter 7 is the most common and is often referred to as liquidation bankruptcy. It’s for individuals who can prove they don’t have the income or means to pay off debts.

After you file, a trustee would help you sell your non-exempt assets, such as your home, car or other valuables, to repay your creditors. Then, even if the sale of those items doesn’t cover the debt in its entirety, you’re discharged from responsibility for your debts.

There is no debt limit for Chapter 7, but your “means” to pay off your debt will be tested and anyone who files for it is required to take credit counseling courses within six months of filing.

Most people can expect the process to take anywhere from three to six months.

Chapter 13 Bankruptcy

Chapter 13 — or “wage-earner bankruptcy” — is for people whose income makes them ineligible for Chapter 7. Individuals and families who file Chapter 13 will work with a trustee to restructure and reorganize their debts and pay it back over three to five years, in which time debtors are not allowed to take on any additional debt.

You won’t have to liquidate any assets in Chapter 13, meaning you can keep your house. Instead, your payment plan will be determined by your household income and how it compares to your state’s median income.

Chapter 13 bankruptcy does come with some debt limits. According to the Federal Judiciary, you can only have:

  • $ 1,184,200 in secured debt, i.e., debt that is secured by collateral, like a house or car.
  • $ 394,725 in unsecured debt.

Federal law requires you to make your first payment to your trustee 30 days after filing.

Other Types of Bankruptcy

The Federal Judiciary describes bankruptcy as it applies to businesses and less common types of bankruptcies. Here’s a basic overview:

Type Typically Used by Basic Requirements Debt Limit Filing Fee*
Chapter 7 Individuals Prove you don’t have the means to repay debts n/a $ 335
Chapter 13 Individuals Have reliable income and the ability to repay debts $ 394,725 unsecured; $ 1,184,200 secured $ 310
Chapter 11 Businesses Be engaged in commercial or business activities $ 2,566,050 $ 1,717
Chapter 9 Municipalities, including cities, counties and school districts Municipality must be insolvent n/a $ 1,717
Chapter 12 Family farmers and fisherman Individual or married couple whose primary income and debt are related to the farming or fishing operation $ 4,153,150 farming; $ 1,924,550 fishing $ 275
Chapter 15 Foreign debtors Case must involve parties outside of the U.S. n/a $ 1,717

*Fees and requirements are accurate as of February 2019.

What to Expect When You File Bankruptcy

The process is pretty involved, and you’re probably going to want to consult with a bankruptcy attorney to make decisions for your individual case. Here’s a quick overview of what to expect.

Bankruptcy Fees

You can apply to have Chapter 7 fees waived (with this form) or set up a payment plan for Chapter 13 fees if you can’t afford them upfront. To be eligible for a waiver, your household income should be less than 150% of the poverty line (calculated for you here), and you have to be unable to pay the fee in installments.

Additionally, you’ll be responsible for legal fees, which will vary.

Automatic Stay

Once you file bankruptcy, creditors and collectors have to stop trying to collect the money you owe them while the case is open.

That’s called an “automatic stay.”

If a company continues to try to collect during the stay, it’s violating a court order. Let the company know in writing, and the collections will likely stop. If they don’t, notify the bankruptcy court, which can punish the company for violating a court order.

Remember: Bankruptcy (Almost) Never Discharges These Debts

Debtors typically use bankruptcy to discharge credit card or medical debt. Many types of debt can’t be discharged this way, including:

  • Student loan debt (except sometimes).
  • Child support.
  • Alimony.
  • Most tax debts.
  • Debt you owe someone as a result of a criminal or civil charge, e.g., injury caused by a DUI.

For auto loans and mortgages, your debt may be discharged, but it could mean the creditor can seize the property you took a loan against — they could repossess your car, for example.

You can instead choose to “reaffirm” the debt, or leave it out of the bankruptcy discharge, and you’ll remain responsible for paying it off. And you get to keep your property.

Dana Sitar (dana@thepennyhoarder.com) is a writer and editor at The Penny Hoarder. Say hi and tell her a good joke on Twitter @danasitar.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

The Penny Hoarder Promise: We provide accurate, reliable information. Here’s why you can trust us and how we make money.

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Why USA Gymnastics’ Bankruptcy Will Delay Abuse Survivors’ Search for the Truth

USA Gymnastics’ announcement Wednesday that it was filing for Chapter 11 bankruptcy protection was in some ways expected. The embattled organization is currently under investigation by Congress and under threat of losing its status as the national governing body for gymnastics by the US Olympic Committee (USOC). It faces more than 100 lawsuits by gymnasts who claim that the organization failed to act to protect them against sexual abuse by Larry Nassar, who for many years was the national team doctor, even after reports of his abuse were made to USA Gymnastics officials.

Board chair Kathryn Carson said in a statement that the move is meant to “expedite resolution of claims by the Nassar survivors.” However, John Manly, the attorney who represents more than 100 of those survivors – including Olympians McKayla Maroney, Aly Raisman, Kyla Ross and Jordyn Wieber – says the bankruptcy filing will delay, not speed up resolution of those lawsuits. Manly is currently taking depositions and discovery in some of those suits, which are now on hold because of the bankruptcy filing.

“If the goal is to delay, this is what you do,” he tells TIME. “We have depositions and request for other discovery and subpoenas lined up to get at the meat of what they knew and when they knew it [about the sexual abuse]. Bankruptcy stops that because there is an automatic stay on litigation.”

In its filing, USA Gymnastics lists former CEO Steve Penny, who led the organization during much of the time Nassar abused gymnasts, as the largest creditor, with a nearly $ 340,000 claim. Penny resigned in 2017 as the sexual abuse allegations mounted, and he and the organization were criticized for how they handled the abuse reports. He left USA Gymnastics with a reported $ 1 million severance, approved by the board. And in October, Penny was arrested after he was indicted on charges of tampering with evidence in the Nassar case. Texas law enforcement officials charged Penny with ordering removal of documents from USA Gymnastics’ national training center, the Karolyi Ranch, in 2016.

In her statement, Carson said that any money USA Gymnastics may owe as a result of the lawsuits — when they resume — would be covered by the organization’s insurance policies.

But those athletes with pending lawsuits will have to take yet another legal step because of USA Gymnastics’ decision to file for Chapter 11 protection. The federal bankruptcy court in Indianapolis, where the organization is based, will set a time during which all creditors must step forward and file a claim for any funds they are owed by USA Gymnastics. Creditors usually have four to six months to file these claims, and the gymnasts currently suing USA Gymnastics must also file this separate claim for any damages or recompense they feel they are owed.

From the survivors’ perspective, the delay in the litigation means they will continue to search for answers about why the organization they believed was protecting their best interests allowed Nassar to continue to treat them — at competitions, including in hotel rooms, and at training camps — even after many of them had reported his abuse to USA Gymnastics officials.

“I think USA Gymnastics thinks this is now just about money,” says Manly. “My direction from my clients is that we are not discussing money until we get the truth. The bankruptcy definitely makes it difficult; it delays things and is definitely not a win for us. But we have trial dates set, and we are moving toward trial.”

Sports – TIME

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USA Gymnastics Files For Bankruptcy in Wake of Sex Abuse Scandal

USA Gymnastics is turning to bankruptcy in an effort to ensure its survival.

The embattled organization filed a Chapter 11 bankruptcy petition on Wednesday as it attempts to reach settlements in the dozens of sex-abuse lawsuits it faces and to forestall its potential demise at the hands of the U.S. Olympic Committee.

USA Gymnastics filed the petition in Indianapolis, where it is based. It faces 100 lawsuits representing 350 athletes in various courts across the country who blame the group for failing to supervise Larry Nassar, a team doctor accused of molesting them.

Kathryn Carson, who was recently elected chairwoman of the board of directors, said the organization is turning to bankruptcy to speed things up after mediation attempts failed to gain traction.

“Those discussions were not moving at any pace,” Carson said. “We as a board felt this was a critical imperative and decided to take this action.”

The filing does not affect the amount of money available to victims, which would come from previously purchased insurance coverage, she said. Carson said the insurance companies “are aware we’re taking this action and our expectation is they will come to the table and pay on our coverage.”

Carson added: “This is not a liquidation. This is a reorganization.”

One that USA Gymnastics hopes will buy it enough time to fend off the USOC’s intent to decertify it.

The USOC on Nov. 5 took steps to remove USAG as the sport’s governing body at the Olympic level — a step that’s taken only under the most extreme circumstances. In an open letter to the gymnastics community, USOC CEO Sarah Hirshland said “you deserve better,” and that the challenges facing USA Gymnastics were more than it was capable of overcoming as currently constructed.

Carson said the legal maneuvering Wednesday delays the USOC’s efforts to strip its designation as a national governing body.

“We always have a dialogue going with them and intend to make it clear with them we have a lot to talk about and we want to keep that going,” Carson said.

USOC spokesman Patrick Sandusky disagreed.

“While we fully understand that USAG believes this restructuring will begin to solve deficiencies we’ve identified, the filing does not impact our Section 8 complaint and that process will move forward,” Sandusky said.

Sports – TIME

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USA Gymnastics files for bankruptcy as it seeks to resolve sexual abuse claims

USA Gymnastics filed for reorganization under Chapter 11 of the Bankruptcy Code, which will allow it to continue operating while also resolving the sexual abuse claims made by several athletes against former USA Gymnastics national team doctor Larry Nassar. 
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Business | New York Post

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Tisha Campbell-Martin Pays Over $100k To Buy Back Royalties In Bankruptcy Case

(Photo Credit: PR Photos)

Tisha Campbell-Martin has reportedly reached a deal to buy back the rights to collect her royalties that she relinquished as part of her bankruptcy case.

According to court documents obtained by The Blast, Tisha and her estranged husband Duane Martin have reached a settlement with the trustee. She will reportedly pay $ 115,000 in two installments in order to obtain her residual rights. Martin will pay $ 60,000 in one installment and $ 55,000 in another within 90 days of a court’s approval of the settlement.

The former couple have been battling over the residuals for months and, as noted in the report, since the bankruptcy was filed, the trustee has collected $ 300,000 in royalties.

The docs state, “Since December 2017, the debtors have been in the process of ending their marriage and in February 2018, Ms. Campbell filed for divorce from Mr. Martin … In connection with that process and Ms. Campbell’s stated attempt to unravel a long history of Mr. Martin’s control over their joint finances, Ms. Campbell engaged new representation with regard to the dispute described in the Agreement.”

The actress previously accused her ex of hiding money from her during their marriage. She also told the trustee that during their marriage, Duane was responsible for managing all their financials, including collecting her residuals.

Campbell-Martin filed for divorce earlier this year after 20 years of marriage. She and Duane were reportedly legally separated in December 2016.

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