Chapter 13 Bankruptcy helps you to develop a plan to repay all or some debts over a period of 3 to 5 years. The Bankruptcy Code requires sufficient disposable income above living expenses. Once filed, all creditor collections must stop. Home foreclosure must stop. Your lawyer will help you to prepare and file a plan to save your home, repay some money to your creditors and help you earn a fresh start.
There are many good reasons to file Chapter 13. Most often, our clients want to save homes from foreclosure or cars from repossession.
A Chapter 13 is a powerful tool to keep family homes. Chapter 13 stops foreclosure, it stops seizure of property by the IRS and other bill collectors. The creditors must obtain the Bankruptcy Court's permission to continue to collect debts. This is not frequently granted.
You must work with your attorney to file a Chapter 13 Plan. This shows how you will catch up on a mortgage and handle other debts such as taxes and credit cards or auto loans. You must prove they can afford to pay their living expenses (mortgage, food, utilities, etc.) while being able to pay creditors by making payments to the trustee. Your lawyer prepares this with your help providing the necessary information. The Court must approve the repayment plan. This occurs at a Confirmation Hearing, which is usually 45 days after the Meeting of Creditors. The attorney attends this hearing on behalf of the client, who is not required to appear. Generally, the plan is approved or confirmed if it complies with the applicable provisions of Chapter 13.
The Chapter 13 debtor is given 3 to 5 years to catch up on missed payments while making regular current payments on mortgages and car or other loans. Some debts, such as second mortgages or Home Equity Lines of Credit (HELOC's), may be eliminated without paying anything on them, or substantially less than what is owed, or only what the collateral (property) may be worth. This is called "cram down", and can be incorporated in the Chapter 13 Plan. When you are in a Chapter 13 bankruptcy, the law forbids creditors from starting or continuing collection efforts.
You must make monthly payments to a Chapter 13 trustee. Payments start on the first day of the month after the petition is filed. The trustee will send you a list showing what money was collected from the debtor and paid out to the creditors. You can see this online.
The trustee gets a small percentage of the money paid by the debtor. Many people who file Chapter 13 bankruptcy cases get to keep most, if not all, of their property so long as they make the payments in their Chapter 13 Plan.
After you have made all payments called for in the plan and the trustee has disbursed the money to creditors, you will earn a Bankruptcy Discharge. No longer is any money owed to your creditors other than for secured property such as a house or car.
CHAPTER 13 PAYMENT PLANS
The Chapter 13 case gives you the opportunity to save your home and to pay off creditors some percentage of what they are owed over a 3 to 5 year perio8d.
The Bankruptcy Code requires that you must also file a Chapter 13 Plan and attend a trustee meeting. Your attorney can explain what needs to be done so your Chapter 13 Plan is confirmed or approved by the Bankruptcy Judge.
WHAT DOES A CHAPTER 13 TRUSTEE DO?
The Chapter 13 trustee performs some of the same jobs as a Chapter 7 trustee. The Chapter 13 trustee's job is to collect payments from you every month and pay that money to your creditors based on a plan that the Court approves.
The Chapter 13 trustee reviews your plan and may file objections if the trustee believes that your plan does not comply with the law or if something needs corrections.
Your creditors may object to your Chapter 13 Plan. If the trustee's or creditor objections cannot be resolved by negotiation, the Bankruptcy Judge will listen to the lawyers, read the papers filed with the court and issue a ruling.
A discharge is granted after the plan payments are completed. You will have cured the late or missed payments on your home and eliminated many of your other debts. A Chapter 13 opens the door to your improved financial future.
NOTICE: The decision to file bankruptcy is a serious choice. Bankruptcy is not for everyone. It is a drastic remedy that can affect your credit for many years and will affect your ability to use the Bankruptcy Code at a future time when you may need it more. Some chapter 13 plans are never successfully completed and the funds paid do not cure the mortgage arrears or allow redemption of property. Upon filing a bankruptcy you may lose control of your property and you may not dismiss a bankruptcy proceeding without court approval once it is filed. The decision of when to file a bankruptcy is also crucial and dependent on your individual circumstances. Be sure to discuss the potential pitfalls of bankruptcy as well as its advantages with any professional you are considering.