Chapter 13 Bankruptcy Overview
A Chapter 13 Bankruptcy is a reorganization of your debt. Some call it a bill consolidation through the court system. Unlike a Chapter 7, which simply liquidates your unsecured debt and has no payments, a Chapter 13 Bankruptcy is a powerful tool to pay creditors on terms that are favorable to you. This chapter of bankruptcy allows you to keep property that has delinquent payments. A person normally utilizes a Chapter 13 Bankruptcy in the following situations:
1. First, a Chapter 13 Bankruptcy can allow a Debtor to stop the foreclosure of a residence or repossession of a vehicle. The Chapter 13 repayment plan allows the Debtor to take any mortgage arrears and pay back the mortgage company over a three to five year period. It also allows you to completely refinance automobile loans and generally lower interest rates. This provides you an opportunity to impose payment terms favorable to you, rather than unrealistic terms imposed by a creditor.
2. Furthermore, debts that may not be dischargeable in a Chapter 7 can be paid back through a Chapter 13 Bankruptcy. Examples of non-dischargeable debts are delinquent income taxes and back due child support. The Chapter 13 Bankruptcy allows the Debtor to repay these debts over the three to five year payment plan and in most situations prohibits wage garnishment.
Who Can File Chapter 13 Bankruptcy?
A Chapter 13 Bankruptcy is an option for Debtors provided they have income or wages sufficient to fund a repayment plan. The bankruptcy code also sets certain debt limitations for both secured and unsecured debt. If a Debtor is over those limits, they are not eligible to file a Chapter 13 Bankruptcy. If you have a prior bankruptcy discharge under Chapter 7 or Chapter 13 you should consult our office to advise you of your eligibility.
What Debts can be Included in a Chapter 13?
When you file a Chapter 13 Bankruptcy case it is required that you list all of your debts. Debtors are often confused between listing debt and providing for repayment and discharge of those debts. There are three ways to treat debt through the Chapter 13 repayment plan.
1) The first category is secured debt that you are going to continue to pay yourself, outside of the bankruptcy. An example of this is your home so long as you are not behind on your mortgage payments.
2) The second type of debt is debt to be paid through the Chapter 13 repayment plan. This could be mortgage arrears, your car, furniture, or even IRS taxes and back due child support.
3) The third type of debt is unsecured debt which is paid as best you can. Often you will repay only a portion of this debt and the remainder will be wiped out upon the discharge of your case. Examples of these debts are credits cards, medical bills, payday loans, personal loans, judgments, repossession deficiencies, and other unsecured debts.