Chapter 13 bankruptcy can be an effective form of debt relief. By filing for chapter 13 bankruptcy you can:
- Stop foreclosure
- Catch up on secured debts
- Stop creditor harassment
- Discharge unsecured debts
- Strip off second mortgages
Chapter 13 Bankruptcy Basics
Whereas Chapter 7 bankruptcy involves the liquidation of assets, Chapter 13 bankruptcy involves the consolidation and restructuring of debts. In chapter 13 certain delinquent debts may be cured and brought current while you remain in possession of your property. Furthermore, “underwater” secured debts can be bifurcated, meaning that the secured portion of the debt can be “crammed down” to the fair market value of the collateral while the portion of the debt in excess of the collateral’s value can be classified as unsecured debt and paid with other unsecured claims.
Chapter 13 bankruptcy involves the creation of a repayment plan. The repayment plan will involve payments that can realistically be made on a monthly basis for 3-5 years after filing. At the conclusion of the repayment plan you will have repaid 100% of your secured debts and a percentage of some unsecured debts. Any remaining unsecured debts will be discharged upon completion of the Chapter 13 bankruptcy plan.
Protect Your Property in Chapter 13
Chapter 13 bankruptcy allows you to keep non-exempt assets that would be sold in chapter 7. We know that certain property is important to you, and we understand that protecting certain property can be a good reason for filing chapter 13 bankruptcy. Many clients want to file chapter 13 bankruptcy in order to keep their home and car. In chapter 13 bankruptcy you can stop an impending foreclosure sale and keep your home while you catch up on delinquent payments.
There are two factors of chapter 13 bankruptcy that empower people to keep their homes while they catch-up on their late payments: (1) curing of long-term debts & (2) retention of non-exempt property. First, in chapter 13 bankruptcy you can repay defaults on long-term debts, including home mortgage payments. For instance, if you owe $10,000 in late mortgage payments and file for chapter 13 bankruptcy, you will repay (or “cure”) the $10,000 over 5 years while you keep your home. On that note, the second feature of chapter 13 bankruptcy that empowers people to keep their home while they catch up on late payments is the retention of non-exempt property. Even if you have equity in your home above the state exemption amount (the amount the state says you can protect in bankruptcy) you can still keep that home while you repay your late payments. While non-exempt property is sold in chapter 7 bankruptcy, all property is kept in chapter 13 bankruptcy (subject to the best interests test, see below).
Chapter 13 Bankruptcy Plan Confirmation Requirements
Your chapter 13 bankruptcy attorney will have to file a confirmable chapter 13 plan. For a chapter 13 plan to be confirmed it must meet several requirements. Among those requirements is that the plan must be feasible and satisfy the best interests of creditors test.
For a chapter 13 bankruptcy plan to be feasible it must have a reasonable likelihood of success. To show a reasonable likelihood of success you must be able to show income in excess of expenses in an amount sufficient to make your monthly chapter 13 plan payments. After all, if you don’t have enough money at the end of the month to pay your chapter 13 plan payment, you will not be able to complete the chapter 13 plan and receive a discharge; to which, there is no point in filing for chapter 13 bankruptcy.
A chapter 13 repayment plan must also satisfy the best interests of creditors test. What this means is that general unsecured creditors must receive the present value of your non-exempt property. If you own a non-exempt car with $10,000 in equity which would be sold in chapter 7 bankruptcy, your general unsecured creditors must be paid at least $10,000 in your chapter 13 repayment plan.
Free Case Analysis
Our bankruptcy lawyer offers a free case analysis to prospective clients. Call our office to schedule your free consultation and find out if chapter 13 bankruptcy is right for you.