What is Chapter 13 and why should I consider it?
Chapter 13 bankruptcy allows you to submit an interest-free debt repayment plan through which you consolidate your debts and make a payment on your debt over a 3 to 5 year period. While in a Chapter 13 debt repayment plan, the creditors cannot collect from you, and the creditors are required by a Federal Court order to adhere to the terms of the plan.
To be eligible for a Chapter 13 repayment plan, you must be working or have a consistent source of income for your repayment plan to be approved by the court. Not only must you be able to pay for your monthly living expenses, but you must also be able to make a payment to the court to consolidate your debts.
Debts that are generally consolidated in a Chapter 13 bankruptcy are mortgage arrears, balances on vehicle loans, student loans, credit card debts and other unsecured debts. All outstanding debts must be included in the Chapter 13 bankruptcy consolidation.
There are debt ceilings to be eligible for chapter 13. In 2009, the secured debt may not be in an amount more than $1,010,650 and unsecured debt may not be more than $336,900.
There are many good reasons to file Chapter 13 - the top 10 are:
REASON # 1
The # 1 reason for choosing to file any bankruptcy - including a Chapter 13 bankruptcy is to obtain the automatic stay! Filing for protection under any chapter, barring a few prominent exceptions, halts all ongoing legal actions against the debtor as they are automatically stopped including foreclosures (THERE ARE EXCEPTIONS - so consult your attorney). more...
You may be able to save your home from foreclosure as you may be able to cure your mortgage arrears - retain your home.
If a debtor is behind in his or her mortgage payments and facing a foreclosure, Chapter 13 can permit the debtor to cure the defaults through a repayment plan while making regular monthly mortgage payments which will ultimately allow the reinstatement of the mortgage.
Under the Bankruptcy Code provisions which govern chapter 13, mortgage arrears are paid as part of the Chapter 13 plan payment through the Chapter 13 trustee while the debtor commences regular monthly mortgage payments post petition (after the filing).
Debtors who use Chapter 13 for this purpose will be able to cure the amounts that they are behind in their mortgage in exchange for being monitored to be certain that they do not fall behind on their mortgages after filing.
REASON # 2
The #2 reason for choosing to file a Chapter 13 bankruptcy is that you may retain 'Non-Exempt' Property. more...
You may retain 'Non-Exempt' Property.
In a Chapter 7, non-exempt property of the debtor is sold to satisfy the claims of creditors. A Chapter 13 allows a debtor to keep non-exempt property which would otherwise be liquidated in a Chapter 7 and allows the debtor to pay the Chapter 13 Trustee, over 3 to 5 year time period money in an amount that equals or exceeds the value of the property the debtor wishes to retain.
This allows the debtor to retain the property and is an important consideration for many people facing financial difficulties but who wish to keep the assets which they have like a car, family jewelry and other assets which they may have accumulated over the years.
REASON # 3
The # 3 reason for choosing to file a Chapter 13 bankruptcy is to retain 'Non-Exempt' Property. You may be able to keep assets which might otherwise be liquidated in a chapter 7 proceeding by proposing a repayment plan. more...
You may retain 'Non-Exempt' Property.
The # 3 reason for choosing to file a Chapter 13 bankruptcy is to retain “Non-Exempt” Property.
You may be able to keep assets which might otherwise be liquidated in a chapter 7 proceeding by proposing a repayment plan.
In a Chapter 7, non-exempt property of the debtor is sold to satisfy the claims of creditors. A Chapter 13 allows a debtor to keep non-exempt property which would otherwise be liquidated in a Chapter 7 and allows the debtor to pay the Chapter 13 Trustee, over 3 to 5 year time period money in an amount that equals or exceeds the value of the property the debtor wishes to retain. This allows the debtor to retain the property and is an important consideration for many people facing financial difficulties but who wish to keep the assets which they have like a car, family jewelry or heirlooms and other assets which they may have accumulated over the years. Chapter 13 debtors can expect to keep all or majority of their property through federal or state exemptions
REASON # 4
The # 4 reason for choosing to file a Chapter 13 bankruptcy is that you maybe able to 'Cram Down' certain of your secured debts. more...
The # 4 reason for choosing to file a Chapter 13 bankruptcy is that you maybe able to cram Down" certain of your secured debts.
Using a cram down procedure allows you to lower the amount that you owe on most secured debts such as a car or furniture and in some instances mortgages on real estate to reflect the value of the assets. Chapter 13 bankruptcy plans allow you to lower the amount that you owe or the interest rate being charged on most secured debts by a process called a "cram down". Secured debts are those that if you do not pay, then you will have to return that item, such as a car, furniture or house (however, the cram down option is not available for your house except under very limited circumstances). When you finance a car or furniture, you typically make a number of monthly payments to repay the loan. In most cases, the value of the item you are financing decreases faster than the loan is being repaid (for example, a car purchased two years ago is now worth less than the amount still owed on the loan even though every payment has been paid). This is known as being "upside down." A year or two after you make a purchase, the value of the item you are paying for is usually much less than the remaining balance owed. Debts like these can be "crammed down" in Chapter 13, by paying the value of the property (usually your car or furniture) in full plus interest with the remaining balance paid as little as a penny for every dollar owed BUT THERE ARE EXCEPTIONS so check with your lawyer to see if you can reduce the interest that you have to pay on a secured loan. Many people have car or furniture loans where they agreed to pay 15%-30% interest, and sometimes even more. In a Chapter 13 bankruptcy you may be able to reduce not only your principal but your interest rate as well.
REASON # 5
The # 5 reason for choosing to file a Chapter 13 bankruptcy is to take advantage of the Co-debtor Stay. You may be able to protect your co-signers from having to pay the co-signed obligations which might otherwise occur if you file a chapter 7 proceeding by proposing a repayment plan. more...
The # 5 reason to take advantage of the Co-debtor Stay.
You may be able to protect your co-signers from having to pay the co-signed obligations which might otherwise occur if you file a chapter 7 proceeding by proposing a repayment plan. Unlike other chapters under the bankruptcy code which are available for individuals faced with financial difficulty, a chapter 13 provides protection to a co-signer or co-obligor which is known as the "co-debtor stay". This protection prevents a creditor from pursuing a co-debtor on a consumer debt. There is no equivalent provision in Chapter 11 or Chapter 7.
REASON # 6
The # 6 reason for choosing to file a Chapter 13 bankruptcy is that property can be sold free of liens and encumbrances and preserve your homestead protections. more...
The # 6 reason for choosing to file a Chapter 13 bankruptcy is that property can be sold free of liens and encumbrances and preserve your homestead protections.
In this day of falling real estate values and mortgages which exceed the value of the property - or cases where there have been judicial liens attached to your property, you may be able to sell your real estate free and clear of liens and in some instances, avoid liens to protect your homestead rights under Massachusetts General Laws.
Another reason to file a Chapter 13 is to control the sale of your real estate through the bankruptcy and to protect what homestead rights may exist at the time of filing free from the liens and claims and encumbrances of creditors leaving the claims to be paid from the proceeds of the sale. The Bankruptcy Code provides the debtor with the right to sell property in a manner and at a time which can generate the highest value. This is beneficial as when a Chapter 7 Trustee seeks to liquidate property, potential buyers may not be inclined to make their best offer as it is seen as a forced liquidation or there may be liens which impair your homestead rights. Obtaining the best price for property is essential for your financial rehabilitation and in this instance, a Chapter 13 may be the best mechanism to achieve the goal.
REASON # 7
The # 7 reason for choosing to file a Chapter 13 bankruptcy is that some claims may be treated differently than others. You may be able to separately classify some claims in order to satisfy priority (tax or domestic support obligations (alimony and child support etc.) by proposing a repayment plan in chapter 13 to provide for that. more...
The # 7 reason for choosing to file a Chapter 13 bankruptcy is that some claims may be treated differently than others.
You may be able to separately classify some claims in order to satisfy priority (tax or domestic support obligations (alimony and child support etc.) by proposing a repayment plan in chapter 13 to provide for that.
In some instances, Chapter 13 permits a debtor to file a wage earner repayment plan which separately classifies certain unsecured claims and allows the debtor to control the payment of a priority debts and domestic support obligations debt through the plan provisions instead of being overwhelmed by those obligations at the conclusion of the bankruptcy or having them treated the same as other general unsecured creditors.
REASON # 8
The # 8 reason for choosing to file a Chapter 13 bankruptcy is that you may continue to operate your sole proprietor business and successfully reorganize it through a repayment plan. more...
The # 8 reason for choosing to file a Chapter 13 bankruptcy is that you may continue to operate your sole proprietor business and successfully reorganize it through a repayment plan.
If you operate a business as a sole proprietorship, Chapter 13 permits you to continue to run the business and to reorganize.
Filing a chapter 13 allows you to reorganize your business and to continue to operate it. It is important that you take steps to understand why the business performed poorly so that it can be restructured and successful when you are operating outside the bankruptcy protections of chapter 13. You should work with your counsel and use the tools provided and protections offered under Chapter 13 to help your business recover and operate at a profit once free from existing debt.
REASON # 9
The # 9 reason for choosing to file a Chapter 13 bankruptcy is that you may not have to pay back anything to general unsecured creditors. more...
The # 9 reason for choosing to file a Chapter 13 bankruptcy is that you may not have to pay back anything to general unsecured creditors.
The amount you have to repay your unsecured creditors is now dictated by the Bankruptcy Code. You can now do a Chapter 13 with a “0” percent pay-back to the unsecured creditors in some circumstances.
A Chapter 13 plan can be used to pay the Chapter 13 Trustee, the legal fees and the secured debts for the property the debtor really wants to keep and may not require any repayment to the credit card debts or other obligations. This is the same that you would probably spend in a Chapter 7 bankruptcy but lets you keep your assets.
A Chapter 13 repayment plan can provide that the money paid through the chapter 13 Plan is to be applied by the creditors to pay down the balance of the debt that existed as of the date of filing. For example, unsecured claims (like credit card obligations) are frozen as of the filing date. Even more importantly, unsecured priority debt such as tax obligations owed to the Internal Revenue Service and the Commonwealth of Massachusetts Department of Revenue are frozen as of the filing date and can be repaid through the Plan.
REASON # 10
The # 10 reason for choosing to file a Chapter 13 bankruptcy is that future (re)financing of a home and opportunities for future credit may be brighter. more...
The # 10 reason for choosing to file a Chapter 13 bankruptcy is that future (re)financing of a home and opportunities for future credit may be brighter.
In the current economic climate, finding financing at all may be difficult even for people with excellent credit. A chapter 13 debtor may find that it will be easier and quicker to finance a home purchase or to refinance a mortgage obligation after having completed a repayment plan under Chapter 13 than if that same debtor filed Chapter 7.
In past years, some lenders were willing to extend financing to provide home purchase money at competitive rates if a debtor had been in Chapter 13 and made every payment under the plan to the trustee in full and on time for a 12 month period. In many instances, if a debtor instead filed Chapter 7, the debtor could have to wait at least two years after his or her Chapter 7 discharge before he or she can qualify for the same financing.
It should be noted, that on the other hand, some debtors also find that lenders are more willing to provide almost any other type of financing (such as motor vehicle and credit card offers) much more quickly after a Chapter 7 discharge and be completely unwilling to consider such financing while a debtor is in Chapter 13 as they focus their attention on when a debtor receives his or her discharge (which is usually three to four months after filing a Chapter 7 versus three to five years after filing a Chapter 13).
