Chapter 13 is a debt reorganization plan, used to pay back mortgage arrears, car loans and certain taxes while being protected from foreclosure and repossession. The Chapter 13 filer pays a certain amount monthly to a Chapter 13 Trustee, who divides the payments between creditors according to class. The monthly payment amount is determined by figuring income vs. allowable expenses, and should be affordable for the applicant every month.
If you have fallen behind on house payments and are in danger of losing your home to foreclosure, a Chapter 13 Plan gives you an opportunity to make up those missed payments over years. Also, non-dischargeable debt, such as child support or certain taxes, can be repaid with no interest. Car loans can also be paid through a Chapter 13, and in some cases where the vehicle is worth less than what is owed, the car can be paid off by paying only the value of the car. Chapter 13 is also a useful way to gain bankruptcy protection for those ineligible to file a Chapter 7 because of higher income, or a recent Chapter 7 filing.
Any past-due child support must be paid in a Chapter 13 plan, and paying back certain tax liabilities is also mandatory. Also, to save a house from foreclosure, you must repay all missed mortgage payments. Car payments may be made through the Plan. Other debts, such as unsecured credit cards, medical bills, and certain judgments, are paid back only if the applicant can afford to pay. Oftentimes this means that unsecured creditors are not paid at all. If payments are made according to the plan, these unsecured debts will be discharged, similar to a Chapter 7 "Fresh Start".
As part of a Chapter 13 Plan unsecured Second Trust Deeds can be stripped from your house. That is, if you owe more on your house first mortgage than your house is worth, we can file a motion with the court to “strip off” all junior liens from your house, and to treat that those debts as unsecured.
As part of a Chapter 13 Plan we can cram down vehicle loans and some other secured debt. If your car loan is more than 2 ½ years old, and you owe more than your car is worth, you would pay only the value of the car back to the lender, and treat the balance of your car loan as unsecured. For example, if you owe $20,000 on your car which has a value of $12,000, we would arrange to pay back $12,000 through the Chapter 13 Plan, and treat the remaining $8,000 as unsecured debt to be paid back with other unsecured debt, or perhaps not at all.
Filing a Chapter 13 Plan is an excellent way to save your house from foreclosure, especially if there was a temporary reason for the default, such as an illness, divorce, job loss, death in the family, downsizing, etc. If income has stabilized, a Chapter 13 Plan is often the best way to pay back arrears on your home.
A typical Chapter 13 plan lasts from 36 to 60 months, depending on the individual's income, and amount of debt to be reorganized.
In order to be eligible to get relief under Chapter 13 you must have a regular and steady income. Wage-earners, self-employed business owners, and even retirees with steady pensions will qualify for Chapter 13.
There is also a debt limit to qualify for Chapter 13. Individuals with unsecured debt of less than $419,275, and secured debt of less than $1,257,850 are eligible to file a Chapter 13 case.
The initial consultation with our office is completely free. You are under no obligation to pay any fees or to continue any further. This is an excellent opportunity to learn how a bankruptcy might help you in your particular situation. During your initial consultation we will discuss the fees involved if you decide to continue.