Recent world events have caught many people off guard. After 11 years of economic stability and years of a record-high employment rate, many Lancaster County homeowners were surprised by recent furloughs or job losses. Others may have found that even a few weeks or a few months without income have buried them in debt.
While many people are accustomed to thinking of bankruptcy as a financial failure, in Pennsylvania Chapter 13 bankruptcy is actually a tool developed to help people repay debts without liquidating all of their assets. As many Lancaster attorneys can tell you, this type of bankruptcy was designed to help usually steady earners get back on their feet after a rough period.
Also referred to as the “Wage Earner’s Bankruptcy,” Chapter 13 allows some people in Lancaster County to repay part or all of their debts instead of selling major assets or going into foreclosure. For many, Chapter 13’s most appealing feature is that it allows homeowners to get back on track with mortgages and unsecured debts.
Lancaster Attorney explains how Chapter 13 Works
In Pennsylvania, Chapter 13 bankruptcy requires the petitioner to submit a repayment plan for their debts that safeguard assets against repossession or foreclosure. Chapter 13 is focused on repaying all or part of their debts without selling assets, while Chapter 7 eliminates unsecured debts.
Pennsylvania businesses are not eligible for Chapter 13 but may be able to file business bankruptcy, or Chapter 11. Stockbrokers and commodity brokers are also ineligible for Chapter 13 bankruptcy, even if their debts are personal. Especially important in Lancaster County, family farmers are not eligible and must file Chapter 12 bankruptcy.
Individuals in Pennsylvania who can demonstrate that they have the means to pay down debts are eligible to file. These people must disclose their sources of income and submit the information to the court within 14 days of filing a petition. This income can come from a variety of sources, including pension income, Social Security payments, unemployment compensation, royalties, and rent and proceeds from a property sale.
Filers also need to be current in their tax filings. They are required to submit proof that they have filed state and federal tax returns for the past four years. Lancaster attorneys know that if an applicant can’t provide proof of taxes, their case can be delayed or even dismissed if they are unable to produce or offer transcripts of tax returns.
Responsibilities for child support and alimony payments remain. Student loans and unpaid taxes must also be paid. Chapter 13 will also negatively affect credit rates for many years and may make it difficult for the filer to borrow during that period.
Once a person has filed Chapter 13 bankruptcy in Pennsylvania, they must also undergo credit counseling from an approved agency within 180 days.
Under Chapter 13, eligible filers usually have three to five years to resolve their debts. All disposable income will be redirected to reducing debt. Payment plans are created to help applicants eliminate unsecured debt while catching up on missed mortgage or car payments. For the duration of the Chapter 13 bankruptcy, the filers are required to remain under the supervision of a court-appointed trustee who must collect and distribute debt payments on their behalf.
Once the court agrees on a repayment plan, the filer must make timely payments. No late payments are allowed. If a financial situation becomes more severe, the filer must notify their Lancaster attorney immediately and seek a modification of the plan.
Who is Eligible for Chapter 13 in Pennsylvania?
Any Lancaster bankruptcy attorney can confirm that not everyone qualifies for Chapter 13 bankruptcy relief. If an individual has more $1,1884,200 in secured debts, such as a home mortgage and a car loan, they will not qualify. Additionally, if they have more accumulated more than $394,725 in unsecured debt, such as personal loans or credit card debt, they will not be eligible. Note that the government adjusts these figures periodically to reflect changes in the consumer price index.
If a petitioner has had a bankruptcy claim dismissed in the 180 days before filing due to an unwillingness to appear in court, they may not be eligible.
Can You File for Chapter 13 if Your Home is Currently in Foreclosure?
Filing for Chapter 13 can stop the foreclose on a home. It suspends any current foreclosure proceedings and puts a temporary hold on payment of other debts. However, the temporary suspension of payments does not eliminate the debt. Consult your Lancaster bankruptcy attorney for details.
What is Needed to File Chapter 13 Bankruptcy in Lancaster County?
People who are considering Chapter 13 should meet with their Going and Plank attorney immediately to initiate proceedings, and will need to provide:
- An inventory of creditors, and the amount of debt owed to each
- Documentation on income and sources of income
- A list of assets, including home(s), vehicle(s), and their accompanying leases, contracts, payment schedules, or mortgage agreements
- Copies of recent federal income tax returns, and a statement of any unpaid taxes
- A detailed list of monthly living expenses
Want to Learn More From a Lancaster attorney?
Chapter 13 bankruptcy is a good way for some people to re-set their finances and get overall debt under control without losing their home or assets. However, not everyone qualifies. Some people may need to file Chapter 7 bankruptcy, which has different benefits and stipulations.
If you are not sure if Chapter 13 is the best solution for your issues, contact The Law Offices of Going and Plank to schedule your free consultation. We’ll help you evaluate your situation and work with you to find the right solutions for you.
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