If you do not qualify for a Chapter 7 Bankruptcy, or you are seeking to catch up on payments for a house or a car so you can keep them, your attorney may advise you to file a Chapter 13 Bankruptcy. In a Chapter 13 Bankruptcy, also known as a “reorganization” type of bankruptcy, debtors make a monthly payment to a trustee. This payment is used, in part, to pay off arrearages on secured debts – like home mortgages or car loans – and may be used to pay back a percentage of a debtor’s unsecured debts – debts like credit cards or medical bills. The amount of unsecured debts a debtor must repay varies from case to case, but is often pennies on the dollar, or in some cases, zero.
Chapter 13 cases last between 3 and 5 years depending on the debtor’s income. In general, if a debtor earns less than the median income for the area in which she files, the debtor qualifies to be in a 3-year repayment plan. If a debtor earns more than the median income for the area in which she files, the debtor qualifies for a 5-year repayment plan.
Like in Chapter 7, debtors are required to complete a short credit counseling course before filing their cases, and are required to attend a “meeting of the creditors” 30 to 45 days after filing their cases. Clients may take the credit counseling course on the internet at Hamilton Law’s office if they wish. Hamilton Law also will be present with the client at the meeting of the creditors to ensure that the client’s interests are protected.
Many people seek the protection of Chapter 13 Bankruptcy to stop foreclosure proceedings against a primary residence. Debtors may able to save a home in Chapter 13 if they can repay the amounts in arrears on their home loan during the life of the Chapter 13 plan. Debtors need to remember, however, that they must also make current mortgage payments at the same time they are repaying the arrearages. If you are interested in this strategy, you should talk to a qualified attorney to discuss the feasibility of saving your home in a Chapter 13 plan.
An important feature of Chapter 13 is that allows debtors to “strip off” second and third mortgages where their first mortgage is completely unsecured. To put this another way, where a debtor owes more on the principal balance of his first mortgage than his house is worth, the debtor may avoid a second mortgage on the property. This may save the debtor tens of thousands of dollars in the long run.