Chapter 13 Bankruptcy
Unlike Chapter 7 Bankruptcy, Chapter 13 is a debt repayment plan. If you file a Chapter 13 bankruptcy, you and your lawyer work together to develop a plan that will allow you to pay off a percentage of your debts over a three to five-year period. Depending on your specific circumstances, filing Chapter 13 may allow you to:
- Stop your Creditors and Debt Collectors from Harassing You
- Stop a home foreclosure and in some cases provide you with the opportunity to keep your home
- Pay back debts in a more gradual fashion
- Protect your assets
- Reduce certain debts
You may decide to file Chapter 13 bankruptcy instead of Chapter 7 for one of the following reasons:
- Filing Chapter 13 may allow you to keep some assets you would otherwise lose by filing Chapter 7 bankruptcy.
- A Chapter 13 bankruptcy can provide you with more time to catch up on mortgage payments and prevent foreclosure of your home.
- You may not qualify for Chapter 7 bankruptcy.
Debt Repayment Plans
The Chapter 13 bankruptcy repayment plan is a form of debt consolidation, and will require you to make a single payment to the bankruptcy trustee and the bankruptcy trustee will disburse the funds to the creditors pursuant to an Order Confirming Plan.
Filing Chapter 13 bankruptcy, means that you agree to pay back all of your secured debt, wherein you are keeping the collateral, over a three to five-year period. Secured debt is debt backed by real property (your home, your car, etc…). This will be done under a repayment plan that you and your attorney will develop and submit to the Court. The key to determining the amount of your monthly payment plan is what the Court and Trustee calls your “disposable income”. Your disposable income is the amount of money you have in a surplus a month after paying only your reasonable living expenses and allowable deduction from your income.
In addition to repaying 100% of your secured debt, you will also be required to pay back a percentage of your unsecured debt (lawsuit judgments, credit cards, hospital bills, payday loans, etc…). The percentage of unsecured debt that you will be required to repay will be determined by the amount you can actually afford to repay. That percentage amount could range from zero percent (0%) to one hundred percent (100%). Again, this percentage is determined by your disposable income that you can pay in the Plan.