Could Chapter 13 Bankruptcy Be the Light at the End of Your Tunnel?

Baltimore Bankruptcy Lawyers Advise Clients Regarding Their Debt Relief Options

Many individuals want to eliminate their debt without paying it back (and by giving up their non-exempt property). However, those who are having trouble paying their bills but have a regular source of income and property that they would like to keep (both exempt and non-exempt), chapter 13 bankruptcy could be a viable option for them.

Although debts are not canceled like they are in a chapter 7 bankruptcy, they can be decreased under a chapter 13 payment plan. However, the amount paid to creditors must be at least the amount they would have received under a chapter 7 bankruptcy. The precise amount of debt that will need to be paid back under chapter 13 is determined by the debtor’s disposable income that can be applied to the plan, as calculated by the Bankruptcy Means Test. If their debts are not primarily consumer debts (credit cards, student loans, auto loans, etc.), they will typically be exempt from the means test. 

When applying the means test, Maryland bankruptcy courts will review your average income for the six months prior to the bankruptcy filing and compare it to the median income for the state of Maryland. If your income falls below the median, you are eligible for chapter 7 bankruptcy. If your income is higher than the median, the rest of the means test will be used to see if you might be eligible for chapter 7 or if you must file for chapter 13 bankruptcy.

How Does Chapter 13 Bankruptcy Work?

Under chapter 13 bankruptcy, a debtor will suggest a three-to-five-year repayment plan to creditors proposing to pay off all or a portion of their debt from future income. Some of the advantages that chapter 13 bankruptcy provides to debtors include the ability to:

  • Stop a home foreclosure 

  • Avoid wage garnishment and the collection efforts of creditors

  • Bring current missed car or mortgage payments

  • Pay off back taxes 

  • Prevent interest from accruing on tax debt

  • Retain valuable non-exempt property

  • Take more time to pay debts that aren’t dischargeable under chapter 7 or chapter 13 bankruptcy, including back taxes and child support

Once you have filed your bankruptcy paperwork, an automatic stay goes into effect to prohibit creditors from directly contacting you or making a claim on any of your property. An automatic stay will also stop any foreclosure proceedings. 

Those who file a chapter 13 plan will need to attend a hearing before the bankruptcy court will approve their plan. Once the plan is confirmed, the debtor must begin making payments – they are generally withdrawn directly from their wages. At the end of the term, any dischargeable debts still owed will be discharged if the debtor was compliant with their plan. 

Contact an Experienced Baltimore Chapter 13 Bankruptcy Law Firm

Those who can file for chapter 7 bankruptcy are sometimes better off choosing chapter 13. If you have regular income and are interested in reorganizing your debt into a manageable plan, contact Atkinson Law online or call 410-882-9595 (Baltimore office) or 443-384-0013 (Bel Air Office) to schedule your free initial consultation and speak with a knowledgeable chapter 13 bankruptcy attorney today.