Chapter 13 Bankruptcy Overview
Chapter 13 Bankruptcy is a way for individuals to protect their property and reorganize theirdebts. Debtors in Chapter 13 bankruptcy cases usually fall into one of two categories. First,debtors who are behind on payments to secured lenders and are at risk of losing their property. Second, higher-income debtors who cannot afford to pay their creditors and wish to reorganizetheir debt.
In Chapter 13 bankruptcy debtors file a plan to reorganize their debt with the bankruptcy court. This plan provides that they will make payments to a trustee each month for thirty-six to sixtymonths. The trustee takes that money and disburses it to the creditors, as per the terms of theplan. At the end of the case the debtor receives a discharge, meaning that they are no longerliable for many types of debts.
Chapter 13 Bankruptcy Allows Debtors To Discharge Debt
Bankruptcy is a great way to eliminate debt. In most cases, Chapter 7 bankruptcy is the preferredway of discharging unsecured debt. Cases filed under Chapter 7 are quick and low-cost. However, Chapter 7 is limited to debtors who cannot afford to make payments to creditors. High-income debtors sometimes need debt relief as well, and that is where Chapter 13bankruptcy comes in.
Chapter 13 bankruptcy requires that debtors pay unsecured creditors only to the extent that theycan afford to make payments. Debtors in these cases file a means test that calculates theirdisposable income. The plan must dedicate an amount equal to the debtor’s disposable incomefor payment to the unsecured creditors. Once the plan is completed, the remaining unsecureddebt is discharged, meaning that the debtor is no longer liable for the debt. The discharge ordereffectively wipes out credit cards, medical bills, pay day advance loans, many types ofjudgments, personal loans, and deficiency judgments. However, if the debtor hasnondischargeable debt, like student loans, then the remaining balance of those claims will still bedue after the bankruptcy case is completed.
Chapter 13 Bankruptcy Protects Secured Property
When a person borrows money to purchase a house or a car, they give a lien on the propertypurchased to the lender. This lien allows the lender to foreclose or repossess the property if theborrower stops making payments. When a property owner is in danger of losing his house or car,he can file Chapter 13 bankruptcy to stop the seizure of his property.
Chapter 13 bankruptcy accomplishes two things for property owners who are behind onpayments Stop Foreclosure to secured creditors. First, upon filing bankruptcy an automatic staygoes into effect. The stay prevents all collection efforts against the debtor and his propertywithout court permission. The stay continues in effect until the bankruptcy case is closed or until the court lifts the stay. Chapter 13 bankruptcy is a great tool for stopping a foreclosure orrepossession.
Second, debtors in Chapter 13 bankruptcy cases file a plan to reorganize their debts with thecourt. This plan can be used to pay the missed payments to the creditors. If the debtorsuccessfully completes the plan, and makes all mortgage payments that come due during thecase, then they will be current on their mortgage at the end of the case. The bottom line is thatChapter 13 bankruptcy protects debtors’ secured property while providing them a way to cure themissed payments.
Your Debt Firm, PLLC has gained insight to properly understand your situation, creditors, thejudge, and the peculiarities of the law, in order to counsel you on how best reorganize yourfinances.