Chapter 13

Chapter 13 Bankruptcy has become a bit more common in the last few years as a result of the means test put in place for a Ch. 7 BK.  Also classified as a reorganization bankruptcy, Ch. 13 BK requires no property to be exchanged for ones debts, like Ch. 7. Filing Ch. 13 is based off ones income, since the debt isn’t being “wiped clean”, instead you will arrange to pay monthly payments to your debtors for an average of 3-5 years until the debt(s) are satisfied.  Since the amount you have to pay back is not calculated on the actual debt you owe, but instead the money you have now i.e. your income.  This means the payments to the creditors will be made on the money you have left over after paying rent, car loans, utilities and other necessities.  Once the plan payments have been calculated a trustee will be appointed to oversee the payments and ensure they are being made. The majority of the time, the amount actually paid back is much lower than what’s actually owed.


 

If you have found yourself falling far behind on your mortgage or car payments, you can file Ch. 13 and it allows you to reschedule and extend certain secured debts for the length of the repayment plan. This is the single biggest reason for filing Ch. 13, however it will stay on your credit score for 7 years unlike other debt relief programs that may help you restore credit faster.

 

Differentiating between 3 Types of Debts:

  1. Priority Debts
  2. Secured Debts
  3. Unsecured Non-Priority Debts

 

Priority Debts:

Priority Debts are considered to be more important than other debts and are generally first in line to be paid back during the repayment period.  Child support, student loans, court ordered restitution, spousal support, and certain taxes are categorized as Priority Debts.  Again, these debts must be paid in full in order for the court to discharge them.

Secured Debts:

A secured debt is just that, a debt that is secured by some sort of collateral.  Jewelry, real estate, vehicles, furniture, etc. are some basic examples of secured debt.  These debts must be paid up to at least the value of the collateral.  In some rare cases, the full debt must be satisfied, but this is obviously a case by case situation.  In Ch. 13 BK, sometimes you can get the 2nd and/or 3rd mortgage eliminated as well; this depends on your home value compared to how much is owed.

Unsecured Non-Priority Debts:

Credit cards are the largest unsecured debt in america representing $777 billion as of May 2011.  The average credit card debt per household is nearly $15,000.  Medical bills, any personal loans, and some taxes 3+ years old round out the rest of the unsecured debt category. Typically in a Chapter 13 proceeding, a small percentage of the total debt is actually paid back for unsecured debts.

“The plan need not pay unsecured claims in full as long it provides that the debtor will pay all projected ‘disposable income’ over an ‘applicable commitment period,’ and as long as unsecured creditors receive at least as much under the plan as they would receive if the debtor’s assets were liquidated under Chapter 7…” -The Administrative Office of United States Courts.

 

Eligibility for Chapter 13

To be eligible to file Ch. 13 BK, your income must be high enough (based off your state’s median) and you must have “regular” income. If you fail to meet these requirements, you may not be able to make the payments you’ve set up on your repayment schedule and you won’t be eligible to file Ch.13.

 

Chapter 7 vs. Chapter 13

 

bankruptcy comparison


 

Emergency Bankruptcy Filings

Sometimes a person needs to file bankruptcy right away to stop a foreclosure, repossession, eviction, execution sale, tax levy, or utility shut-off. The bankruptcy rules allow the debtor to initiate a bankruptcy case by filing only the three page petition.

 

Mandatory Credit Counseling

Whether you’re considering filing Chapter 7 or Chapter 13, you are required to attend a credit counseling course. This is mandatory. This course can be done online, or in person with a government approved credit counselor.  Failure to complete this course will result in debts not being discharged.

 

If you would like to speak with one of our specialists about enrolling in a particular program, or just need some help deciding which solution is right for you, feel free to call us at (888) 609-1854 | Opt. #1 or complete the form on our CONTACT page.