Chapter 13 bankruptcy
- You are making too much money under the means test to qualify for a chapter 7
- You have equity in your home and you would lose it were you to file chapter 7
- Your car was seized and you want to get it back so you can restructure your car loan under a “cram down”
- You want to stop a foreclosure sale on your home and get caught up in payment
- You need to structure repayment of your debt to the IRS
What is a Chapter 13 Bankruptcy?
The Chapter 13 bankruptcy is known as the “reorganization” bankruptcy. In a Chapter 13 bankruptcy, the debtor is allowed to keep most or all of his property, and receive a discharge of his debts, upon the monthly payment of a sum of money to the bankruptcy trustee for a period of three to five years.
In a Chapter 13 bankruptcy, the debtor files a “Chapter 13 Plan”, of which a copy is provided to the creditors and trustee. In the Chapter 13 Plan, the debtor will set forth how much he owes each creditor, and the value of the collateral and interest rate on the “secured” debts. The Chapter 13 Plan will set forth which debts will be paid by the trustee and which debts the debtor will pay directly himself.
The big question in a Chapter 13 bankruptcy is how much the monthly payment will be to the trustee. The answer depends on a number of factors, including the value of the property kept by the debtor, the interest rates on the “secured” creditors (those with collateral), the type of each particular debt (secured or unsecured, taxes, child support, etc.), and whether the debts were co- signed or guaranteed by another person, among many other factors.
The creditors and the trustee have the right to object to the terms of the Chapter 13 Plan. The debtor’s attorney and the creditors and/or trustee will attempt to resolve the differences. When the objections are resolved, the Chapter 13 bankruptcy can be “confirmed” by the Bankruptcy Judge at the Confirmation Hearing. Upon the completion of payments in a Chapter 13 bankruptcy, the debtor will receive a discharge of the debts set forth in the Chapter 13 Plan, except for the debts that the debtor agrees to directly pay to the creditor.