If you’re facing overwhelming debt and considering a path to financial freedom, a Chapter 13 bankruptcy attorney in Harrison, Arkansas, can be your trusted ally.

At Watson Law Firm in Harrison, Arkansas, my firm is dedicated to guiding you through the challenges of Chapter 13 bankruptcy, providing tailored solutions that allow you to reorganize your debts and regain control of your finances. 

With in-depth knowledge of Arkansas bankruptcy law and a compassionate approach to your unique situation, I'll work diligently to help you secure a fresh financial start. Let me help you explore your options and protect your future today.

What Is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is a debt relief option under the U.S. Bankruptcy Code designed for individuals with regular income who are unable to meet their current financial obligations. 

Unlike Chapter 7, where assets may be liquidated to repay creditors, Chapter 13 allows debtors to create a repayment plan that spans three to five years. During this time, they'll make monthly payments to a bankruptcy trustee, who will distribute these funds to creditors based on the debtor’s income, expenses, and the nature of the debt.

The fundamental advantage of Chapter 13 bankruptcy is that it allows debtors to retain their property, including a home, car, or other assets that might otherwise be at risk in a Chapter 7 filing. It also allows debtors to manage their debt more effectively by consolidating payments and reducing the total amount owed in some cases.

Eligibility for Chapter 13 Bankruptcy in Arkansas

Eligibility to file for Chapter 13 bankruptcy in Arkansas is based on the following criteria:

• Income requirement: The debtor must have regular income, which could include wages, salary, self-employment income, rental income, or even government benefits. This regular income is essential to demonstrate the ability to make payments under a Chapter 13 plan.

• Debt limits: There are limits on the amount of debt a person can have and still qualify for Chapter 13. These limits are updated periodically. As of 2024, the limits are:

  • Secured debt: $1,257,850

  • Unsecured debt: $419,275

If an individual’s debts exceed these amounts, they wouldn't be eligible for Chapter 13 and may need to consider filing under Chapter 11, which is typically for business entities but also available to individuals in certain circumstances.

• Prior bankruptcy filings: If an individual has previously filed for bankruptcy, there are restrictions on the timing of subsequent filings. For example, a person who has previously filed for Chapter 7 or Chapter 13 and had a bankruptcy case dismissed within the past 180 days may be ineligible to file for Chapter 13.

• Good faith: The filing must be made in good faith, meaning that the debtor must genuinely seek to reorganize their debts and not abuse the system. Courts will assess whether the debtor has acted in good faith, which includes factors such as a history of dishonesty in financial matters or prior bankruptcy filings.

Once you've determined you're eligible for bankruptcy, you can begin the filing process.

Filing for Chapter 13 Bankruptcy in Arkansas

Filing for Chapter 13 bankruptcy in Arkansas involves several steps, including preparation of the petition, the creation of a repayment plan, and the appearance before a bankruptcy trustee. Below is an outline of the steps involved:

Pre-Filing Requirements

Before filing for Chapter 13 bankruptcy, debtors must complete credit counseling from an approved agency. This counseling must take place within 180 days before filing and is intended to help debtors understand their financial situation and explore alternatives to bankruptcy.

Additionally, debtors must gather important financial documents such as:

• Income records (pay stubs, tax returns, bank statements, etc.)

• A list of all debts (secured and unsecured)

• A list of all assets (property, vehicles, etc.)

• A list of monthly living expenses

Filing the Petition

The process begins by filing a bankruptcy petition with the U.S. Bankruptcy Court for the Eastern or Western District of Arkansas, depending on the debtor's residence. The petition includes:

• A list of creditors

• A statement of financial affairs

• A list of monthly income and expenses

• A proposed repayment plan

The filing fee for Chapter 13 is around $310, but debtors may be eligible for a fee waiver or installment payments based on their financial situation.

The Automatic Stay

Upon filing for Chapter 13 bankruptcy, an automatic stay is immediately put into place. This stay halts most collection actions, including foreclosure, wage garnishment, and creditor lawsuits. The stay provides the debtor with immediate relief from creditor harassment while they work on a repayment plan.

Meeting of Creditors

Approximately 20 to 40 days after filing, the debtor must attend a meeting of creditors, also known as a 341 hearing. During this meeting, the bankruptcy trustee will ask questions to verify the accuracy of the debtor’s financial information and assess whether the proposed repayment plan is feasible. Creditors may also attend and ask questions, although this is rare.

Plan Confirmation

The bankruptcy trustee and creditors review the proposed repayment plan, and the court will schedule a hearing to confirm the plan. If the judge approves the plan, the debtor begins making payments under the terms of the plan. If the plan isn't approved, the debtor may need to amend it and resubmit it for approval.

Repayment Period

Once the plan is confirmed, the debtor begins making regular payments to the bankruptcy trustee. These payments are used to repay creditors according to the plan’s terms. 

The plan typically lasts three to five years, and once the debtor completes the repayment plan, any remaining qualifying unsecured debt may be discharged, meaning it no longer needs to be repaid.

The core component of Chapter 13 bankruptcy is the repayment plan, which outlines how a debtor may repay creditors over the duration of the case.

Chapter 13 Repayment Plan

The terms of the plan are based on the debtor’s income, expenses, and the nature of the debts.

• Secured debts: These include mortgages, car loans, and other loans where the creditor has a lien on property. In Chapter 13, secured debts are usually repaid in full, or the debtor may have the opportunity to modify the loan terms to make repayment more manageable.

• Priority debts: Certain debts, such as child support, alimony, and certain taxes, must be paid in full during the bankruptcy plan. These debts have a higher priority than unsecured debts.

• Unsecured debts: These include credit card debts, medical bills, and personal loans that don't have collateral. Depending on the debtor’s income and the amount of debt, unsecured debts may be partially or fully discharged at the end of the plan.

• Disposable income: The repayment plan is generally based on the debtor’s disposable income, which is the income left after accounting for necessary living expenses. The debtor must commit all disposable income to the repayment plan.

Chapter 13 bankruptcy offers a powerful solution for those seeking to regain financial stability, allowing for debt reorganization, manageable repayment plans, and protection from creditors.

Benefits of Chapter 13 Bankruptcy in Arkansas

Filing for Chapter 13 bankruptcy in Arkansas offers a number of benefits for individuals struggling with debt:

• Retention of property: Chapter 13 allows debtors to retain their property, such as a home or car, which might be at risk in Chapter 7. This is especially important for individuals facing foreclosure or repossession.

• Debt consolidation: Instead of dealing with multiple creditors, Chapter 13 consolidates debt into one manageable monthly payment. The trustee handles the distribution of funds to creditors.

• Protection from creditor harassment: The automatic stay provides immediate protection from collection activities, including phone calls, wage garnishments, and lawsuits.

• Potential for debt reduction: Some unsecured debts may be discharged after the repayment plan is completed. Additionally, the repayment amount for secured debts could be reduced in certain circumstances, such as with a “cramdown” on a car loan.

• Rebuilding credit: Chapter 13 can help individuals rebuild their credit over time. While the bankruptcy filing will appear on the individual’s credit report, Chapter 13 shows an effort to repay creditors, which may be viewed more favorably than Chapter 7.

However, it’s important to understand the potential disadvantages of filing for bankruptcy as well to make sure it aligns with your long-term financial goals.

Disadvantages and Considerations

Despite its advantages, Chapter 13 bankruptcy also has potential downsides:

• Length of the process: Chapter 13 bankruptcy involves a long repayment period of 3 to 5 years, which may be a significant burden for individuals already struggling financially.

• Commitment to repayment: The debtor must commit to paying a portion of their income for several years, which can be difficult if the person experiences a change in circumstances, such as a job loss or medical emergency.

• Impact on credit: While Chapter 13 may be less damaging than Chapter 7, it will still negatively impact the individual’s credit report and can make it harder to obtain credit in the future.

• Eligibility requirements: Not everyone is eligible for Chapter 13, especially if their debts exceed the limits established by the Bankruptcy Code. Additionally, debtors must have a regular income to qualify for Chapter 13.

Arkansas follows the federal bankruptcy laws, but there are certain aspects that vary by state. 

Local Considerations

Arkansas has specific exemptions for individuals who file for bankruptcy, which may protect certain types of property from being seized in a bankruptcy case. Some of the most common exemptions in Arkansas include:

• Homestead exemption: Arkansas allows a homestead exemption of up to $500 in value for a person’s primary residence.

• Vehicle exemption: Debtors can exempt up to $2,500 of equity in a vehicle, provided it’s necessary for transportation.

Arkansas residents must also file their Chapter 13 bankruptcy petition in one of two districts: the Eastern or Western District of Arkansas. The Eastern District covers the northern and central parts of the state, while the Western District includes the southern and western regions.

Consult Watson Law Firm Today

If you're considering Chapter 13 bankruptcy in Arkansas, it's vital to consult with a Chapter 13 bankruptcy attorney. At Watson Law Firm, I serve clients in Baxter, Boone, Marion, and Newton County. Contact me today to schedule a consultation.