Bankruptcy - Chapter 13
For those who are experiencing a temporary gap in income, perhaps due to job loss, a divorce, and injury or an illness, it can be difficult to continue to make ends meet. By the time income is restored, late fees, higher interest rates and overdue payments may have combined to make it impossible to catch up. There are many reasons why you may choose to file Chapter 13 instead of Chapter 7 bankruptcy:
- You may not qualify for Chapter 7 under the means test.
- Filing Chapter 13 bankruptcy may allow you to protect assets you would otherwise lose by filing Chapter 7 bankruptcy.
- Chapter 13 bankruptcy gives you more time to catch up on mortgage payments to prevent a home foreclosure.
- There are some tax debts you can discharge in a Chapter 13 bankruptcy that can't be discharged in a Chapter 7 bankruptcy.
Under your Chapter 13 bankruptcy payment plan, you will agree to pay back 100 percent of your secured debt over a three- to five-year period. Secured debt is debt backed by certain property, such as your home and your car. After you and your lawyer have determined a budget, you will pay back a percentage of your unsecured debt such as credit card bills, lawsuit judgments, payday loans and hospital bills. This percentage will be determined by how much you can afford to pay. A Chapter 13 bankruptcy plan is a form of debt consolidation, as you will make one payment to the bankruptcy trustee, who will then pay your creditors. At the end of the payment plan, remaining unsecured debts will be eliminated and you will be up to date on your secured obligations. Filing Chapter 13 bankruptcy puts an immediate stop to:
- Home foreclosure
- Wage garnishment
- Harassment by your creditors
Chapter 13 can also help with mortgage related stress. It stops the foreclosure in its tracks and allows you to cure the mortgage default in one of two ways. Chapter 13 mandates that you can start making the original mortgage payments on a monthly basis moving forward and cure any arrears on that mortgage over the course of the Plan (which is between three and five years). Or, you can attempt a mortgage modification. You are allowed approximately six months to negotiate a modification with the lender, and during that time, you pay an affordable proposed monthly mortgage payment to the lender through the Plan.