Referred to as the wage earner's plan, chapter 13 bankruptcy requires you to make payments to your creditors for three to five years. In exchange, you don't have to liquidate any assets, and you can avoid foreclosure on your home. However, you need to make sure you make your payments as directed by the courts.
Worried about staying current with your chapter 13 debt repayments? Use these tips to stay on track.
1. Reschedule Secured Debts
A secured debt refers to any loan backed by collateral. For instance, car loans and mortgages are both secured debts. To keep your monthly debt obligations as low as possible, work with your bankruptcy attorney to reschedule your secured debts. The options vary depending on your situation, but you may be able to catch up on late payments slowly or even reduce what you owe through a cramdown process.
Imagine you are $5,000 behind on mortgage payments. Your lawyer may be able to convince the courts to let you pay that $5,000 in increments over the course of your payment plan so you don't have to worry about coming up with a lump sum all at once.
With car loans, you may be able to rearrange matters so that you owe the current value of the vehicle. For instance, if you owe $12,000 but have a vehicle worth $10,000, you may have to pay only the $10,000.
2. Consider Selling Some Secured Assets
If you don't want to continue making payments on your secured assets, you have the option of selling them, and you may want to consider this route if you worry about making your monthly payments. For instance, if your mortgage is $3,000 per month, yet you can comfortably live in a rental for $1,500 per month, you may want to consider that switch to free up more money in your budget.
3. Keep a Cushion for Emergencies
To ensure you always have money for your payments, build up a cushion for emergencies. This money should be in cash or in a very liquid asset such as a money market account. Then, if you can't make a payment out of your paycheck, you can take the funds from your savings.
4. Cut Expenses
To free up extra money in your budget, you may want to cut expenses. Take some time to go through your budget and identify areas where you can save. You may want to cancel cable and choose an inexpensive streaming service, lower your thermostat by a degree in the winter, or cook more and eat out less.
5. Prioritize Your Debt Repayments
Unfortunately, when you don't make your chapter 13 debt repayments on time, the courts have the right to dismiss your case. If that happens, you lose the protections granted to you by bankruptcy, and your debtors may start to pursue other collection activity. To ensure that doesn't happen, make sure you prioritize your debt repayments. Ideally, you should make the payments as soon as you get paid and before you do anything else.
6. Talk With Your Trustees
That said, you may face situations where you simply can't make your payments due to changes in your income. If you experience an interruption in your income, contact your bankruptcy trustee as soon as possible. Talk with them about the situation and see whether you can get your repayment plan paused or adjusted.
7. Choose a Quality Bankruptcy Attorney
Your bankruptcy attorney is going to have a direct impact on the structure of your repayment plan. To make sure that you get a plan that really works for your situation, you should hire a quality attorney. At the Michelson Law Offices, we have helped people with debt and bankruptcy for more than 30 years. We are committed to getting you the results that work for your situation. To learn more, contact us today.