Chapter 13 Bankruptcy

What is Chapter 13 Bankruptcy?

Chapter 13 Bankruptcy

Chapter 13 Bankruptcy is a type of debt consolidation which allows people to consolidate their debts and payback what they can afford over a 3 to 5 year period. The debts are typically paid with zero or little interest, and unsecured creditors get only a percentage of what they are owed, depending on what the Debtor can afford.

 

One of the biggest benefits to filing a Chapter 13 Bankruptcy is that it allows you to pay the arrears on your mortgage over a five year period and stop a foreclosure while those arrears are being paid back.

 

Frequently Asked Questions About Chapter 13 Bankruptcy

CAN CHAPTER 13 BANKRUPTCY STOP A FORECLOSURE?

The automatic stay in Chapter 13 Bankruptcy immediately stops any collection action as soon as the case is filed.  This includes stopping of any pending foreclosure, repossession, collection lawsuit, or wage garnishment.

 

Additionally, a Chapter 13 Bankruptcy allows you to take the past due amount on your mortgage and spread it out over 5 years with no interest.  Therefore, once your case is filed, your mortgage is back to current.  You go back to making your regular monthly payment and also make a Chapter 13 payment to cover the past due amount over the 5 years.

 

IS THERE LIQUIDATION OF ASSETS IN CHAPTER 13?

No. There is no liquidation of assets in Chapter 13 cases.  However, the law states that you must pay your creditors back through the Chapter 13 plan, at least as much as they would have received if there was a liquidations.

 

WHO IS ELIGIBLE FOR CHAPTER 13?

Anyone with regular income can be eligible for Chapter 13. The only way to really determine what your Chapter 13 plan payments will be is to sit down with an experienced bankruptcy attorney and review your income and expenses using your previous 6 month average income, as well as your current income figures.

 

HOW ARE DEBTS CLASSIFIED IN CHAPTER 13 CASES?
In a Chapter 13, debts are classified as either secured debt (cars/house), unsecured priority debt (income taxes/family support orders), and unsecured non-priority debt (credit cards,etc.).  Through the Chapter 13 Plan, secured debts are paid in full, priority unsecured are paid next, and then credit cards get what’s left, if any.

HOW MUCH IS MY CHAPTER 13 PLAN PAYMENT GOING TO BE?

Your attorney in a Chapter 13 bankruptcy formulates a plan for what creditors are paid and how much the payment is.  It is important to meet with an attorney experienced in Chapter 13 cases to determine your plan payment.

 

Your payment in a Chapter 13 Bankruptcy, is based on your average net income minus your allowable expenses, pursuant to United States Bankruptcy Code §1325, et al. 

 

CAN I INCLUDE STUDENT LOANS IN CHAPTER 13?

Yes, student loans can be included in the consolidation.  However, the remaining balance at the end of a Chapter 13 is non-dischargeable.  So you would have to repay whatever balance is left on your student loans after the Chapter 13 plan is complete. 

 

CAN I STRIP 2ND MORTGAGES FROM MY PROPERTY?

Yes, through Chapter 13 Bankruptcy you can strip any junior mortgages from your property if the property is valued at less than the balance of the senior mortgages. 

 

Example of Chapter 13 Bankruptcy

Chapter 13 Bankruptcy

Husband and wife have a combined income of $80,000.  They have three kids.  They have one home which is worth $250,000.  There first mortgage is for $275,000 and they are behind $3,000.  Their 2nd mortgage is $100,000.  They have one vehicle that is paid in full and one vehicle that is owed $7,000.  They have credit card debt of $80,000.  This couple could hypothetically file a Chapter 13 plan, to last only three years because they are below the median income for a family of five.  If their plan payment was $500 per month, then they would pay $18,000 over the three year plan.  Their vehicle and house arrears would be paid in full, and the $180,000 from the 2nd mortgage and credit cards would get whatever is left, or $8,000.  The remaining balances on the 2nd mortgage and credit cards would be discharged at the end of the case.

 

Recent Case Results in Chapter 13

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