Deciding to file for bankruptcy takes a certain amount of resolve. Those who do are overcoming financial difficulties, stigma and the fear of losing valued possessions. But what bankruptcy really offers is a financial reset. And in Chapter 13, you get to take that chance while keeping your assets.
Chapter 13 allows individuals to devise a plan to repay all or part of their debts, typically in three to five years. It triggers an automatic stay that stops actions by debt collectors while you catch up on overdue payments.
Having a strategy for your plan is critical to successfully managing repayment. The first step involves proper organization and prioritization. To accomplish this, you must understand your assets and liabilities well.
What to file
Your Chapter 13 case starts after you file a petition and all required documents with the bankruptcy court. In part, these include:
- Schedules of assets and liabilities: Detailed lists of what you own and owe
- Current income and expenditures: Documentation of your income and monthly expenses
- Statement of financial affairs: A summary of your financial history and current situation
- Executory contracts and unexpired leases: Any ongoing contracts or leases you are a part of
Information gathered from these documents and your credit counselor can help you better understand feasible ways to distribute funds to your creditors.
Types of claims
After familiarizing yourself with your liabilities, knowing which ones must take priority comes next. You can determine this by the type of claim the creditor has. In New Jersey, the types of claims include:
- Secured claims: In this type, usually paid first, creditors have the right to take back property or collateral if you default on payment. Examples include mortgages, car loans and unpaid property taxes.
- Priority unsecured claims: This type of unsecured claim enjoys a special status by bankruptcy law since they’re essential due to public policy. You can focus on these next since they’re considered your obligations. Examples include child support and alimony, personal injury claims, owed wages and certain taxes.
- General unsecured claims: Typically discharged in bankruptcy, these are claims where the creditor has no special rights to collect. After the first two types are satisfied, these get paid with the remaining funds. Examples include credit card debt, medical bills and personal loans.
By knowing which claims to prioritize, creating a realistic budget while managing stress and anxiety is possible. Consulting a bankruptcy attorney is also advisable to ensure you meet all legal requirements of your Chapter 13 plan and discharge.
