Chapter 13 remains as an option for individuals, couples, and sole proprietors (not corporations) who are struggling financially. With the changes to the Bankruptcy Code made in 2005, many people have been required to seek relief by filing bankruptcy under Chapter 13 rather than Chapter 7. When the debtor’s income exceeds the state’s median income, he or she may not be eligible to file Chapter 7 because the law determines that the person has enough funds available to repay a portion of his or her debt.
Those people that are considering bankruptcy are subjected to a calculation called “The Means Test” if their current monthly income is higher than the state median for a family of the same size.
NoWorriesBankruptcy.com will “run” the Means Test for fee, and if there is disposable income remaining in your budget after you have deducted allowable basic living expenses set by the IRS, you may likely have to file Chapter 13 Bankruptcy.
How Chapter 13 Bankruptcy Works
The Debtors in a Chapter 13 Bankruptcy enter into a monthly repayment plan that lasts from 3 to 5 years. Monthly payments are a fixed amount derived from a debtor’s “disposable monthly income,” and requires a specific calculation that you would want performed by an experienced bankruptcy attorney.
Chapter 13 Bankruptcy may often serve to protect families who are on the verge of losing their home to foreclosure or their car to repossession by putting them into a payment plan they can afford.
As with Chapter 7 the moment you file a Chapter 13 Bankruptcy an “automatic stay” goes into effect that protects the debtor, at least temporarily, from any collection efforts. This means you can immediately halt a foreclosure or repossession by filing a Chapter 13 Bankruptcy.
With Chapter 13 Bankruptcy monthly payments are then used to pay off the past due portion of the loan. Stretching out the repayment of a past due balance over a 3 to 5 year period with the protection of the “automatic stay” results in reduced stress and a smaller monthly obligation.
Higher income debtors may file a Chapter 13 Bankruptcy because they are overwhelmed by unsecured debt. Doing so allows them to freeze late fees, penalties and interest while they slowly pay back part of their debt. At the Conclusion of their Chapter 13 payment plan any balances that remain on unsecured debts are fully discharged. Most often the payments required to be paid with a Chapter 13 plan are substantially smaller than if the debtor made payments to the creditors directly. This is in part because the creditors will not be paid with the contract and/or default rate of interest. Very often unsecured creditors will not be paid any interest. The monthly payments are directed to the trustee of the bankruptcy court over three to five years, and the trustee is responsible for disbursing the funds to the creditors.
Chapter 13 also provides a great opportunity to bring past due mortgage payments current, to pay recent tax debts in full, or to catch up on unpaid child support obligations.
Speak with a knowledgeable bankruptcy attorney for guidance on how Chapter 13 may be available to help you with your financial problems.
Benefits of Chapter 13 Bankruptcy include…
…it stops a foreclosure or repossession immediately and allows you to design a repayment plan you can afford. If you don’t qualify for Chapter 7 Bankruptcy a Chapter 13 Bankruptcy allows you to eliminate your debts for a fraction of the balance. Also, certain car loans can be crammed down to fair market value and some 2nd mortgages can be stripped off entirely, thereby saving you thousands of dollars.
You may consider Chapter 13 Bankruptcy if…
…you have a steady income but you are confronted with an imminent foreclosure or repossession. Also, if you earn too much money to qualify for Chapter 7 Bankruptcy but the total of your unsecured debt is so great you can’t possibly pay it off within the next 5 years.
The consequences of Chapter 13 Bankruptcy include…
…3 to 5 years is a long time to be bound to a repayment plan and more than half of debtors who file for Chapter 13 Bankruptcy fail to complete their plans. Filing for bankruptcy has a negative impact on your credit score. Further, you surrender a great deal of control over your own finances to the Court while you are in an active Chapter 13 Bankruptcy.