Chapter 13 bankruptcy is not what most debtors are interested in.  When most people think about filing for bankruptcy, they are thinking of bankruptcy under Chapter 7.  Chapter 7 is ‘the quick one.’  Chapter 7 is the type of bankruptcy where your non-exempt assets are taken by the Bankruptcy Trustee and sold to pay your creditors.  Both Chapter 7 and Chapter 13 result in a discharge on some or all of your debt, but there are certain Chapter 13 bankruptcy strategies that can be used to give a consumer bankruptcy debtor more flexibility.

  

The most common alternative to Chapter 7 is a bankruptcy under Chapter 13.   While Chapter 13 bankruptcy does not discharge debt quickly, Chapter 13 is a solution for those debtors whose temporary financial troubles can be resolved by making monthly payments on some percentage of their debt.  If a bankruptcy debtor has the ability to make monthly payments, a Chapter 13 can help by (maybe) reducing the amount of debt and allowing for repayment in a manageable monthly installments.

 

What is Chapter 13 Bankruptcy

Chapter 13 Bankruptcy provides a number of solutions to a debtor’s financial problems.

 

• First – reduce your overall debt amount.  A Chapter 13 Plan of Reorganization can be used to reduce remaining car payment amounts, reduce interest and/or principle on a car loan, strip off junior mortgages in certain instances, among other options.
  
  
• Second – provide a manageable way to pay down non-dischargeable debt.  Certain debts [Child Support, Alimony, Most Tax Debt] cannot be discharged by the Bankruptcy Court.  A Chapter 13 can function as a monthly payment plan to allow for repayment of these types of debts while suspending interest and penalties.

A Chapter 13 Plan of Reorganization involves making monthly payments over 3 or 5 years, a debt repayment plan.  A payment is made monthly for 3 years (36 months) or 5 years (60 months).  The amount owed is totalled up and divided by the number of months required to complete payment.  (There is also a 10% charge for payment of the Chapter 13 Trustee).

 

A Chapter 13 requires you to have a source of income to support the proposed repayment plan.  If your monthly income is too low compared to your reasonable monthly expenses, you may be disqualified from Chapter 13 bankruptcy because your disposable income does not cover the monthly repayment of the debt.  However, even in these cases, there may be a Chapter 13 solutions that a knowledgeable bankruptcy attorney can provide.

There are some significant upsides to Chapter 13 Bankruptcy.

 

• Stop foreclosure of your home and allowing you time to either sell or refinance
• Strip a junior mortgage with Chapter 13 from your property, turning them into dischargeable, unsecured debt
• Reduce the remaining balance on your car loan on your car loan
• Reduce the interest rate of your car loan of your car loan
• Managing payment of back taxes and/or child support
• Automatic stays for the spouse and co-debtors of the bankrupt debtor   
  
  I’ve put together a blog posts that outlines each of these Chapter 13 bankruptcy strategies.  Be sure to click on the links above to learn more.

Should You Consider Chapter 13 Bankruptcy

Chapter 13 Bankruptcy is not necessarily for everyone.  However, Chapter 13 provides a way to lower your total debt and establish a workable repayment plan.  If you’re looking at bankruptcy, and you have a steady monthly income that covers your monthly expenses, or if you have financial problems that cannot be solved by a discharge under Chapter 7, Chapter 13 bankruptcy may be your solution.

Contact us if you are thinking about bankruptcy and we can help you determine which approach is right for you.