Navigating America's Chapter 13 bankruptcy law system can be a challenge. If you're planning to file for Chapter 13 bankruptcy, here are four potential mistakes an attorney will tell you to watch out for.
Failing to List All Creditors
When you petition the court for relief, you must list all of the creditors that are relevant to the case. Any unlisted creditor will not be subject to the automatic stay. That means they'll be able to continue collection actions and harassing communications.
Similarly, a creditor that's not in the petition will not be subject to the terms of your eventual payment plan. You won't get a second crack at it once the petition is approved, and that could create huge headaches if a major debt holder isn't part of the bankruptcy.
Not Having Your Numbers Ready
When someone officially starts a Chapter 13 bankruptcy, they will only have a few weeks to get all of the numbers to the court. This means covering details like what your income is, how much debt you owe, and what your current monthly living expenses are. If you don't have the paperwork for these items ready, then you'd be wise to avoid submitting your petition until you have it.
Double-check that you have everything, and make several copies of each item so you can share them with your attorney, the court, and the creditors. Also, find a safe place to store the originals. Place the original documents in folders that are clearly labeled so you can track them down again upon request.
Pursuing a Restructuring Plan You Can't Afford
The core of Chapter 13 bankruptcy law is the idea that some debtors may be able to pay if they're given partial relief. You will submit a repayment schedule that must be paid within three to five years, depending on how the court sees your situation. For example, you might ask your creditors to take 80% of what you owe.
However, you must be able to pay whatever amount is proposed. Otherwise, the court might reject the case or encourage you to pursue a Chapter 7 liquidation of all of your disposable assets.
Paying Others
It might seem okay to pay folks who you don't see as creditors, such as friends or family members who loaned you money. The court may see it differently. Under Chapter 13 bankruptcy law, all creditors are entitled to proportionate shares of what you can pay. Creditors can and do ask courts to take back money that was paid to other parties.
For more information, reach out to a Chapter 13 bankruptcy law service.
