Chapter 13 Bankruptcy

What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy allows individuals to repay some or all of their debts over a three to five year period without having to pay interest to unsecured creditors. Chapter 13 can eliminate or reduce many types of debt including car loans, credit card debt, medical bills and tax debt. Debtors are allowed to keep all of their property and they are not forced to sell assets for the benefit of creditors. Unlike a Chapter 7 trustee who is appointed to liquidate assets, a Chapter 13 trustee is appointed to make recommendations on behalf of creditors to make sure you Chapter 13 plan payment is based upon your best efforts and in good faith. Chapter 13 is one of the primary tools for saving homes from foreclosure and curing defaults. We have also used Chapter 13 to stop collection activities on student loans and other nondischargeable debts.

Who Qualifies for Chapter 13?

Chapter 13 bankruptcy is available for individuals only. Businesses cannot file for Chapter 13 protection. To qualify for Chapter 13 bankruptcy, an individual must have less than $1,184,200.00 in secured debt and less than $394,725.00 in unsecured debt. If your debt exceeds that amount, you will only be entitled to a discharge under Chapter 7 or Chapter 11. You should speak to a qualified bankruptcy lawyer to analyze your debt limits as not all debt is counted for purposes of the debt limits.

What Sort of Chapter 13 Payment Can I Expect?

If you file for Chapter 13 relief, you will pay your net disposable income to creditors for a three to five year period. One monthly payment is made to the Chapter 13 trustee who is then tasked with distributing those funds to creditors in the later stages of the plan. Your Chapter 13 plan payment will be determined by deducting your reasonable and necessary living expenses from your income after deducting taxes. It is based upon what a debtor can comfortably afford. This frequently results in a small payment of a few hundred dollars per month. There is no set minimum percentage that creditors must receive in order to obtain a discharge.

What is the Chapter 13 Process?

Debtors will submit a Chapter 13 plan along with their petition. The first plan payment will be due 30 days after filing based upon what the debtor proposes in the plan. The Chapter 13 trustee will review the plan and make certain recommendations regarding the plan’s compliance with the bankruptcy laws. Once any issues are resolved, the plan will be confirmed and you will continue with payments. You will receive your discharge after completing all your plan payments and your case will be closed. At the end of the bankruptcy, whatever unsecured debts remain are discharged. The large majority of unsecured debts are often unpaid and discharged in a Chapter 13 filing. This results in a substantial savings for clients.

What are the Advantages of Chapter 13?

  • stop a foreclosure sale and get current on payments
  • get current with car payments
  • reduce interest rates on certain loans
  • stop wage garnishment
  • remove judgment liens
  • repay debt over 3 to 5 years
  • terminate car leases
  • reduce balances on vehicle loans to fair market value of the vehicle
  • protect assets that would be liquidated in Chapter 7

Who is a Good Candidate for Chapter 13?

You may be a good candidate for Chapter 13 bankruptcy if you are a higher income earner who does not qualify for a Chapter 7 discharge, if you have assets that may be lost in Chapter 7, if you have one or more junior liens on properties and property is worth less than senior lien, or if you have a pending foreclosure sale, your vehicle was recently repossessed, or you want to pay back your debts but cannot afford minimum payments.

How We Can Help

Developing an adequate repayment plan is best done with the help of experienced bankruptcy counsel. We have the experience in confirming adequate repayment plans and can help with budgets, removing liens, reducing car payments, formulating tax repayment plans and valuing property for purposes of confirmation. Experienced counsel can save a lot of money for clients in a Chapter 13 bankruptcy. Call us today to discuss your bankruptcy options.

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