Chapter 13 Overview
Chapter 13 bankruptcy is a “reorganization” bankruptcy. Typically the debtor enters into a 60 month payment plan in which all or most of the debts are paid off. At the end of a successfully completed chapter 13 bankruptcy plan, the court discharges (i.e. wipes out) the remaining unpaid debts. (Note, there are some non-dischargeable debts that bankruptcy cannot wipe out- if you have one of these debts, the bankruptcy attorney will discuss the issue with you prior to filing).
We typically advise clients to file a Chapter 13 bankruptcy in three situations:
(1) Where the debtor does not meat the “means test” for a Chapter 7 bankruptcy because the debtor’s regular family income is too high. In this case, the Chapter 13 payment plan is a second best option that allows you to make one reasonable payment a month to all creditors through the bankruptcy trustee’s office. If this payment plan does not pay off all the debt within five years, then the remaining debt is wiped out. If your income later goes down, the plan can be modified to lower payments, or even converted to a Chapter 7 which ends the payment plan early. As long as you make the monthly payment under the Chapter 13 bankruptcy plan, creditors must stop harassing you and you can remain in possession of your property.
(2) Where the debtor wants to keep property that cannot be exempted under a Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, the bankruptcy trustee can sell any of the debtor’s property that is not covered by a statutory exemption. If you have more property than exemptions but want to keep your property, the Chapter 13 bankruptcy can often solve this problem.
(3) Where the debtor is trying to keep a house threatened with foreclosure. We typically see this situation where the debtor has arrearages due on their home mortgage. Though they can afford to continue paying the mortgage, they cannot afford to pay the back due amount at the same time. In this case, the Chapter 13 bankruptcy plan allows you to pay back the arrearages through the plan while remaining current on your mortgage outside of the plan. This would not be an option in a Chapter 7 bankruptcy as the bank would still be allowed to foreclose on the property.
You can qualify for chapter 13 bankruptcy if your unsecured debts are less than $300,000 and your secured debts are less than $900,000. If your unsecured/secured debts are greater than these sums, a similar Chapter 11 bankruptcy plan can be filed. If this situation applies to you, please contact Avatar Legal, PC for more details on the Chapter 11 bankruptcy plan. |
