Chapter 13

Chapter 13 is often called a “reorganization” bankruptcy. Also available for business debt or consumer debt, Chapter 13 requires the debtor (and their attorney) to create a repayment plan that lasts either three or five years, depending on the debtor’s income. Chapter 13 is not available for debtors with debts exceeding certain thresholds.

As soon as you file a bankruptcy case, the automatic stay is effective. It prohibits creditors from taking any collection actions against you while your bankruptcy is active. The stay halts all collection calls, lawsuits and garnishments.

Your Chapter 13 plan allows you to reorganize your debt and consolidate it into one monthly payment that you make to the trustee, who then disburses the funds to your creditors as set forth in the terms of your plan.

Your unsecured debt, such as credit cards and medical bills, is paid a percentage of what is owed under your repayment plan. The percentage depends on your income and debt, but most debtors pay pennies on the dollar owed, if anything at all.

If you have fallen behind on your mortgage loan payments or your vehicle loan payments, you can include small payments in your Chapter 13 plan to be applied to curing your delinquencies. A Chapter 13 case lasts three to five years, which typically gives you plenty of time to cure your payment defaults and get your secured loan back on track.

If you have a second or third mortgage on your home, you may be able to “strip” the lien and treat it as an unsecured debt. To qualify, the value of your home must be less than what is owed on the first mortgage.

Chapter 13 can be a great option for homeowners who have fallen behind on their mortgage payments, because they have the life of the plan to catch up any arrearage, bringing their mortgage current. There is also an opportunity to mediate with your mortgage lender to make your loan more affordable, and the success rate in Chapter 13 mediation far outpaces that of state foreclosure court-ordered mediation. You can also “strip” any unsecured liens from your home in a Chapter 13, meaning that the lien against your home is removed, and the debt is treated as an unsecured debt, like a credit card.

To create your plan we look at your monthly income, which must be reasonably stable, and your monthly expenses. Your monthly expenses are determined by using some of your actual monthly expenses (for things like mortgage or car payments), while others are based upon statistical averages (things like your food, utilities, and vehicle-ownership expenses). After subtracting your expenses from your income, what remains is called your “disposable monthly income.” Your plan will consume your disposable monthly income for its duration. You will pay your disposable monthly income to the Chapter 13 Trustee, who will collect the money and distribute it among your creditors according to the Plan. At the end of the plan, if all payments have been made as required, any unsecured liens may be stripped, and any unsecured debt that was not repaid under the plan is discharged.

We are a debt relief agency. We help people file for bankruptcy under the bankruptcy code.