Chapter 13 bankruptcy is the reorganization of an individual consumer's
debt with a new payment schedule. If you have too much disposable
income to qualify for chapter 7 or have assets you want to protect, you
may want to consider this code. Your debts must be below a certain
level and you must have steady income.
With this chapter the debtor reaffirms to pay all or a part of
their debt. The amount of repayment can range from 1% to 100% depending
on the debtor's income and the composition of amount owed. This code
allows the debtor to restructure their payments and set up a new
payment schedule between 3-5 years that is more manageable.
For an individual to qualify under this code unsecured debt may not
exceed $250,000 and secured debts $750,000. Payments are made to secure
creditors first to the extent of their secured interest and priority.
Non priority creditors may be partially paid- credit cards and some
taxes etc. In general, creditor approval is not required. Secured
creditors can object to the repayment plan however, the court can force
acceptance.
This form of bankruptcy is used when the petitioner has property
they want to keep like a mortgage that is about to be foreclosed a
automobile that has or will be reposesed on and other non-exempt
assets that would be liquidated under chapter 7. Filing under this code
will also halt all collection and foreclosure proceedings (including
IRS) and allow the debtor to catch up on their payments and reinstate
their original agreement. Your payments will be made to a Chapter 13
Trustee who will disburse them in a manner called for in the
court-approved plan. During this time the Trustee will have control
over your (personal) finances and any credit-related matters will have
to be cleared through him or her.
Who should consider this chapter?
* If you are behind on your mortgage and need to catch up or if you owe the IRS.
*
If the assets you want to protect would be liquidated (sold) under a
chapter 7 and your disposable income is to high to qualify for a
chapter 7.
* If you need relief from collection proceedings or if you wish
keep your obligation to pay your creditors and need some breathing
room.
* If you wish to leave the option of filing a chapter 7
at some time in the future. If you are a farmer who does not qualify
for chapter 12 and have debt unrelated to farming.
* You filed chapter 7 sometime in the past 8 years. You have a co-signer. If you could pay your debts within 3-5 years.
Downside of Chapter 13
Chapter
13 ruins your credit. It will remain on your credit report for up to 10
years. It will also cost you more for any credit you do get in the form
of higher interest rates. The Trustee appointed to oversee the
completion of your filing may charge up to 8% of the amount filed on.