Chapter 13 Bankruptcy Overview
Are you getting behind on your house payments and afraid of losing your home to foreclosure? Are you facing a repossession? Did you file a chapter 7 bankruptcy but have mounting debt and cannot file another chapter 7? If the answer is yes, then a chapter 13 may be a solution to the debt problems. Solvent has the experience to help our clients obtain debt relief by using the bankruptcy code to our client’s benefit.
What is a chapter 13 bankruptcy?
A chapter 13 bankruptcy allows a debtor to reorganize debt into a manageable repayment plan over 3 to 5 years. In addition to the bankruptcy petition, the debtor must file a repayment plan with the court. A debtor who files a chapter 13 does so for a specific reason beyond just discharging debt. One of the most significant reasons a debtor files a chapter 13 bankruptcy is to pay mortgage arrears to avoid losing a home due to foreclosure. With a few exceptions, a debtor does not pay interest on the debt owed in a chapter 13 bankruptcy. In addition, general unsecured debts (e.g. credit cards or medical debt) do not have to be paid in full. Like a chapter 7 bankruptcy, a chapter 13 bankruptcy is complicated with many traps a debtor can fall into. Having a skilled consumer bankruptcy attorney on your side will make the process easy to navigate.
Why file a chapter 13 bankruptcy?
If your debt burden is weighing you down and you have a specific reason to be in a chapter 13 (as opposed to filing a chapter 7), you should consider filing a chapter 13 bankruptcy. Reasons why you want to file a chapter 13 bankruptcy:
- You need to cure a default on your mortgage
- You need to cure a default on your vehicle loan
- You have taxes that you need to pay back
- You have assets you want to keep that would otherwise be at risk if you filed a chapter 7
- You do not qualify for a chapter 7
- You are not eligible for a chapter 7
A chapter 13 bankruptcy gives a debtor breathing room to get the debt better organized and a fresh financial start.
How does a chapter 13 bankruptcy reorganize a debtor’s debt?
The main benefit of a chapter 13 bankruptcy is the reorganization of the debts into a manageable repayment plan. Upon confirmation of the plan by the bankruptcy court, the chapter 13 trustee begins repaying a debtor’s debts back according to the chapter 13 repayment plan. Typically, the trustee pays the attorney fees, secured debt, and tax debt all before paying back any credit card or medical debt. Upon completion of the plan, the debts you must pay back are paid and any remaining credit card or medical type debts are discharged.
What assets can you keep?
In a chapter 13 bankruptcy, a debtor can exempt certain assets as in a chapter 7 bankruptcy (see chapter 7 bankruptcy section). However, a chapter 13 allows a debtor to keep non-exempt assets if the debtor pays the value of those assets in the chapter 13 plan.
Is there life after chapter 13 bankruptcy?
Absolutely. In some instances, you will be better off after a chapter 13 versus a chapter 7 because you will have paid back debt that would not have been discharged in a chapter 7. You can rebuild your credit while making payments in a chapter 13 and come out of the chapter 13 ready to achieve your financial goals.
