Chapter 13

A Chapter 13 bankruptcy works differently than a Chapter 7.

Instead of liquidating assets, a Chapter 13 bankruptcy sets you up with an affordable repayment plan that usually lasts three to five years.

When you propose your repayment plan, depending on your particular circumstances, you might be able to pay back as little as 0% to all your unsecured creditors while catching up on your missed mortgage payments or missed car payments.

You get 5 years to save the house or the car while getting a 100% discharge of all your unsecured debt (like credit cards). A bankruptcy discharge is a government sanctioned forgiveness of debt with no tax ramifications. You can even pay a large portions of the legal fee over those 5 years.

How to Qualify for a Chapter 13 Bankruptcy

Essentially, you can probably qualify for a Chapter 13 bankruptcy if you do not qualify for a Chapter 7 bankruptcy, or if you don’t want to agree to all the conditions of a Chapter 7 bankruptcy. You must be able to show that you can afford to make the chapter 13 Plan payment every month for 60 consecutive months without fail. Income from any and all sources is allowed, like help from friends, neighbors and relatives, rental income, self-employment income or wages. The amount paid to your creditors under your plan payment will depend on the reason for the filing. Arrears to secured creditors must be paid in full through the plan. Unsecured debt like credit card debt, depending on the reason for filing, could get as little as 0% just like in a chapter 7.

Reasons for Chapter 13:

• You want to stop a foreclosure or a repossession in order to repay the arrears over 5 years.
• You do not qualify for Chapter 7 because you earn too much income (you failed the Means Test).
• You do not qualify for Chapter 7 because you have assets worth more than the exemption limits and you do not want to liquidate those assets.
• You want to “strip off” a second mortgage because the house is so far under water that there is not even enough equity to pay the first mortgage in full.
• You previously filed a Chapter 7 and received a discharge less than 8 years ago, but now need protection from your creditors.
• You want to surrender an investment property that’s completely under water back to the lender.
• You need a mortgage loan modification.

An Overview of Chapter 13 Bankruptcy

When you file for Chapter 13, you propose a 5 year repayment plan that the court needs to approve. This repayment plan needs to show that you will pay certain debts, such as priority debts, in full. If you wish to catch up on mortgage arrears by paying it back over 5 years, you must prove a budget that enables you to make both the mortgage payment and the plan payment every month for 60 months. Unsecured creditors, like credit cards, need only be paid back under the plan, what you can afford. When a chapter 13 is filed, your unsecured creditors may not continue to tack-on interest. Whether unsecured creditors get paid back 0% or 100%, it’s only whatever you can afford and you are debt free in 5 years. No interest tacked-on as of the filing.

Chapter 13 is the next best thing to chapter 7 if you hope to become debt free while being protected from your creditors. In 5 years you will no longer be a debt slave. The court will review your income to ensure you are actually able to make the proposed payments. You are also required to take a credit counseling class. Your case is over when you finish your repayment plan.

Who Does Not Qualify for a Chapter 13 Bankruptcy?

People who file for a Chapter 13 bankruptcy need to have a regular income to prove they can make the payments on their repayment plan; otherwise, the court can reject their filing.

People who have debts that are too high will not be approved for a Chapter 13 bankruptcy. Even if your income is regular, if the court determines that your debts are too high, your filing will be rejected.

Contact a Chapter 13 Bankruptcy Lawyer

If you want to hang onto your house or other personal property, but your bills are higher than you can currently afford, a Chapter 13 bankruptcy might be right for you. Filing for Chapter 13 bankruptcy can be a tricky process, so you should have a skilled bankruptcy attorney help you through the process. The attorneys at Thomas M. Denaro, Esq. can offer clients their wisdom and experience to ensure they never feel like they are alone in trying to solve their financial problems. We can offer reasonable payment plans, a flat fee on your case, and an initial consultation call that is free of charge. Call 718-863-6000 today.