By Dennis L. Plank, Attorney
Pennsylvania Chapter 13 bankruptcy is a legal tool developed to help people repay debts without liquidating all of their assets. It’s potentially beneficial for homeowners who want to manage debt without losing their homes. This type of bankruptcy was designed to help usually steady earners get back on their feet after a rough period.
Sometimes referred to as the “Wage Earner’s Bankruptcy,” Chapter 13 allows qualified applicants to repay part or all of their debts instead of selling major assets or going into foreclosure. It allows many homeowners to get back on track with secured assets, like mortgages, as well as unsecured debts, such as credit card balances.
Repay Debts Without Sacrificing Homeownership
Under Chapter 13, eligible filers usually have three to five years to resolve their debts. 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 law mandates that filers must remain under the supervision of a court-appointed trustee who collects and distributes debt payments on their behalf.
Once the court agrees on a repayment plan, the filer must make timely payments. No late installments are allowed. If a financial situation becomes more severe, the filer must notify their attorney immediately and seek a plan modification.
To file for Chapter 13, individuals must demonstrate that they have the means to pay down debts over time. In addition, filers must disclose their sources of income and submit the information to the court within fourteen days of filing a petition. This income can come from various sources, including pension income, Social Security payments, unemployment compensation, royalties, rent, and proceeds from a property sale.
Additionally, approved applicants must also undergo credit counseling from an approved agency within 180 days. Chapter 13 will also negatively affect credit rates for many years and may make it difficult for the filer to borrow during that period.
Who is Eligible For Chapter 13 in Pennsylvania?
Any individual, even if self-employed or operating an unincorporated business, is eligible for Chapter 13 relief if their combined total secured and unsecured debts are less than $2,750,000 as of the date of filing for bankruptcy relief. Note that the government adjusts these figures periodically to reflect changes in the consumer price index.
Filers may not be eligible if, during the preceding 180 days, a prior bankruptcy petition was dismissed. Dismissal may happen because of the debtor’s willful failure to appear before the court or comply with orders of the court. The petition can also be voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens.
Bankruptcy does not forgive tax debts. For this reason, filers must also be current in their tax filings. They must submit proof that they have filed state and federal tax returns for the past four years. If an applicant can’t provide evidence of taxes, their case can be delayed or even dismissed. Responsibilities for child support and alimony payments remain intact.
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 for Chapter 12 bankruptcy.
Chapter 13 May Stop Foreclosure
Filing for Chapter 13 may stop the foreclosure on a home. It suspends any current foreclosure proceedings and puts a temporary hold on the payment of other debts.
However, it is essential to remember that the temporary suspension of payments does not eliminate debt. Instead, this suspension is intended to give the filer time to develop a comprehensive repayment schedule.
Gather Documents to Get Started
Applicants will need to provide the following paperwork:
- An inventory of creditors and the amount of debt owed to each
- Copies of recent federal income tax returns and a statement of any unpaid taxes
- A detailed list of monthly living expenses
- 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
Contact The Law Offices of Going and Plank
Chapter 13 bankruptcy is a good way for some people to reset their finances and get overall debt under control without losing their homes or assets. However, not everyone qualifies. Some people may need to file for Chapter 7 bankruptcy, which has different benefits and stipulations.
If you are unsure 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 evaluate your situation and work to find the right solutions for you.
Want to learn more about bankruptcy? Check out these articles.
Who can Declare Bankruptcy? Take the Quiz.
Chapter 7 and Chapter 13 Overview for Homeowners
Learn Why Some Lancaster County Residents are Filing for Bankruptcy
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