Chapter 13 of the United States Bankruptcy Code may be a viable option for debtors with high or steady incomes, who are facing foreclosure, or have assets and property that need protection through the bankruptcy process. Chapter 13 bankruptcy may be referred to as reorganization or wage earner’s plan. This type of bankruptcy involves restructuring and repaying A PORTION of all of your debt over a payment plan that will last 3 to 5 years. The Chapter 13 allows a debtor to pay a percentage of their unsecured debt back based on the debtor’s ability.
Once you file your chapter 13 bankruptcy petition, all debt collection activity and lawsuits against you must cease. Upon the successful completion of your repayment plan, all remaining eligible debt will be discharged and you will be released from any further obligation to this debt. Some debtors prefer to utilize a Chapter 13 reorganization for moral or personal reasons, as they wish to pay a portion of the debt they owe.
Benefits of a Chapter 13 vs. Chapter 7
- Stops foreclosure and provides a plan to remedy past-due mortgage payments
- Stops vehicle repossession and provides a plan to remedy past-due mortgage payments
- Eliminate second and third mortgages under certain circumstances
- Cram-down multifamily home loans to current value of the home as opposed to the amount owed (must be paid within 5 years)
- Cram-down auto loans to the current value of the vehicle as opposed to the amount owed
- Individuals have no direct contact with creditors while under chapter 13 protection
Chapter 13 Plan
Shortly after filing the Chapter 13 bankruptcy petition, a chapter 13 plan must be submitted for court approval. The plan must provide for fixed monthly payments, no less than $50/month, for a period of 3 to 5 years. The monthly payment will be distributed by the Trustee to the creditors based on the type of debt. The plan does not need to pay unsecured debts in full as long as it provides that the debtor will pay all projected disposable income over the plan’s duration. Unsecured creditors will receive a dividend between 1% and 100% of the debt that is owed or at least as much under the plan as they would receive if the debtor filed a chapter 7 bankruptcy.
The Chapter 13 Discharge
A discharge releases individual debtors from personal liability for most debts and prevents the creditors from taking any collection action against the debtor. A chapter 13 discharge is subject to many exceptions and it is imperative for debtors to seek competent legal counsel before filing to discuss the scope of the discharge.
Let Swanson & Moors, LLC Help You Today
If you are contemplating a chapter 13 bankruptcy, you can’t afford to pass up a free consultation about filing a chapter 13 bankruptcy with an experienced attorney. Contact Swanson & Moors, LLC today.
The Swanson & Moors, LLC services all of Plymouth County, Bristol County, Norfolk County, and Barnstable County.