The COVID-19 pandemic has caused economic chaos in the United States and around the globe. Many Lancaster County homeowners were caught off guard after more than a decade of economic stability and years of record-high employment rates. Without a stable income, many homeowners are now dealing with a mountain of debt. However, Pennsylvania homeowners have financial options.
Chapter 13 bankruptcy is designed to help people repay debts without liquidating the entirety of their assets. Lawmakers created Chapter 13 bankruptcy to help otherwise steady earners get back on their feet after a difficult financial period.
What is Chapter 13 Bankruptcy?
Also sometimes called the “Wage Earner’s Bankruptcy,” Chapter 13 allows some Pennsylvania residents to pay back some or all of their debt without selling assets or going into foreclosure. Many people opt for Chapter 13 bankruptcy because it permits homeowners to catch up with mortgages and other debts. In Pennsylvania, petitioners must submit a repayment plan as a requirement of Chapter 13 bankruptcy. The repayment plan must cover all debts that safeguard assets against repossession or foreclosure. Unlike Chapter 7, which eliminates unsecured debts, Chapter 13 helps repay debts without selling assets.
What are the Limitations of Chapter 13 Bankruptcy in Pennsylvania?
Chapter 13 has some restrictions. Businesses are ineligible for Chapter 13; they must file for business bankruptcy, or Chapter 11. Most commodity brokers and stockbrokers are ineligible, even in cases when debts are all personal. One particularly important limitation for Lancaster County residents is that family farmers are ineligible and should file for Chapter 12 bankruptcy instead.
Most Pennsylvania residents who demonstrate that they are financially capable of repaying debts can file for Chapter 13. However, they must disclose all sources of income and submit that disclosure to the court within two weeks (14 days) of filing their petition. It is vital that they submit every source of income, including unemployment compensation, Social Security or pension payments, rent or proceeds from property sales, and royalties.
Anyone filing for Chapter 13 must also be current on their tax filings. As such, they are required to submit proof of filing for the previous four years’ federal and state tax returns. Experienced Lancaster attorneys know that if a filer fails to provide adequate proof of taxes, the court can delay or dismiss their case. The application process can be intimidating, and the lengthy list of necessary materials to apply can make it even more difficult. But an experienced Lancaster attorney can help gather the appropriate transcripts and documentation.
There are limits for eligible debt. Individuals with more than $1,257,850 in secured debts (e.g., home mortgage or car loan) do not qualify. If they have more than $419,275 in unsecured debt (e.g., credit card debt or unpaid personal loans), they are not eligible. The Pennsylvania state government adjusts these figures periodically as the consumer price index changes.
Finally, one of the most common reasons a bankruptcy claim is dismissed is because a previous claim was dismissed in the last 180 days before filing (often due to a failure to appear in court). Those considering filing should also consider hiring an experienced Lancaster attorney who can guide them through the process and represent them in court as necessary.
Does Pennsylvania Chapter 13 Help With all Debts?
Chapter 13 is can’t address all financial obligations. Certain responsibilities, such as alimony or child support payments, will remain. Filers must also still pay unpaid taxes and student loans.
How Does Pennsylvania Chapter 13 Affect Finances?
Chapter 13 will affect credit ratings for several years. As a result, filing for bankruptcy usually makes borrowing more difficult, and lenders often charge a higher interest rate.
Furthermore, once a Pennsylvania resident has filed Chapter 13 bankruptcy, they are required to undergo “credit counseling” within 180 days from an approved agency. Filers approved under Chapter 13 are typically given three to five years to resolve their debts. During this period, all of their disposable income will be redirected to the debt.
In addition, filers must remain under the supervision of a court-appointed agent who collects and distributes debt payments. Applicants are subject to payment plans created to help them eliminate unsecured debt while they catch up on car payments or mortgages that have fallen behind.
Once a court agrees on a repayment plan, the applicant must make payments on time. Late payments are not allowed under any circumstances. An experienced Lancaster County attorney can help applicants forge a bankruptcy repayment plan.
One of the biggest financial effects of a Chapter 13 agreement is its ability to stop foreclosure on a home. Chapter 13 suspends any and all current foreclosure proceedings and temporarily stops payment of other debts. However, that temporary suspension does not permanently eliminate those debts. For details on how to use Chapter 13 to rebuild financial security, contact an experienced Lancaster bankruptcy attorney for a free consultation.
Want to learn more about bankruptcy? Check out these articles.
10 Essential Steps to Take Before Filing for Bankruptcy
5 Things to do Before Filing Bankruptcy
Can Chapter 7 Help You Get Back on Track?
Bankruptcy Terms You Need to Know