Chapter 13 Bankruptcy is a powerful debt restructuring tool.
Chapter 13 is a reorganization plan for your finances that typically lasts 3–5 years. Those who earn less than the median income in their respective states will propose a 3-year payment plan. On the other hand, those who earn more than the median income in their state will propose a 5-year payment plan.
It consists of a monthly payment to the court that typically encompasses payments on ALL of your debt, with the typical exception being a mortgage, which you pay directly to your lender. Once you have completed the repayment plan established during your Chapter 13 bankruptcy, the remaining debt will be discharged (except nondischargeable debt such as student loans). Once a debt is discharged, you won’t be responsible for its payment – ever. Most of the time, you will pay back less than you owed before starting the bankruptcy process.
Why file for Chapter 13 bankruptcy?
Typical reasons include:
- You have no other choice. If you make too much money but need bankruptcy assitance, you must file Chapter 13 rather than Chapter 7. In a nutshell, bankruptcy laws prevent those with enough disposable income from paying back debts from filing Chapter 7 bankruptcy.
- You want to. If you would lose some assets in Chapter 7, you can typically avoid or at least mitigate the losses in Chapter 13. While Chapter 7 wipes the slate clean instead of reorganizing your debt, Chapter 13 provides you with the best chance of keeping your assets.
- You need to. If you have things like car repossessions, foreclosures, out-of-control secured debt interest rate, and unsecured debt, Chapter 13 provides powerful relief not available in Chapter 7.
- You chose to. If you feel guilty about walking away from debt in a Chapter 7 bankruptcy, Chapter 13 allows you to pay some or all of your debts back. However, it is on your terms this time, not your debt collector’s.
- You have crippling student loan payments. Chapter 13 bankruptcy allows you to hold student loans at bay for up to 5 years. Although they are not discharged, this solution provides breathing room while you reorganize.
- You have debts that do not go away in Chapter 7. Marital debts (although not marital support obligation) are dischargeable in Chapter 13 and not Chapter 7 bankruptcy.
- You have a driver’s license suspended for traffic infractions. Chapter 13 allows you to reinstate your license in many instances immediately.
How does it work?
In the big picture sense, some things have to get paid. These include car loans, mortgage arrears, and priority debts like child and marital support arrears. An amount equal to what has been liquidated in Chapter 7 bankruptcy is paid into the unsecured creditors. For instance, if in a Chapter 7 case you would lose $4,000.00 of assets to pay unsecured debts, the same amount must be paid into unsecured debt in Chapter 13 cases. And finally, other things can happen during the bankruptcy, such as lien avoidance, lien cram downs, and mortgage modification, among others.
Take your first step towards financial freedom
When you speak to an experienced bankruptcy attorney, you can rest assured that the decision on whether to file Chapter 7 or Chapter 13 won’t be made on your own. Instead, an attorney can help you assess your situation, look at your obligations, and will provide you with an objective opinion regarding which form of bankruptcy provides you with the most relief.
Schedule your free phone consultation by calling us at 503-278-5400 or filling out an online case evaluation form.