Sometimes people are earning a decent living but they are still overwhelmed and are having difficulty keeping up with their ongoing obligations. They feel like all of their money is going to pay their creditors. It is a never-ending cycle for them. Fortunately, there is a light at the end of the tunnel. This could be a Chapter 13 Bankruptcy. All the details of a Chapter 13 can be found in Chapter 13 of the United States Bankruptcy Code. Chapter 13 Bankruptcies usually last 3 to 5 years. At the completion of this term the Debtor will receive their discharge.
How Chapter 13 Works
Chapter 13 bankruptcy is sometimes referred to as a “wage earners” plan. This is because it is the type of bankruptcy chosen by individuals that earn a decent wage but cannot keep up with their monthly obligations. The debts are reorganized and paid in a way that helps the debtor get their feet back on the ground. The amount paid depends on your disposable income. Unlike a Chapter 7, there is no risk of liquidation in a Chapter 13. A debtor can use a Chapter 13 to catch up on mortgage arrears, car payments or even strip a second mortgage lien from their home. An experienced bankruptcy attorney can help determine if a Chapter 13 is right for your situation.
Chapter 13 Bankruptcy Qualifications
Most individuals can qualify for a Chapter 13 provided their income can sustain the reorganization payment. If an individual is above the Chapter 13 Debt limit they will be forced into a Chapter 11 reorganization.As mentioned above, the term of a Chapter 13 Bankruptcy repayment plan is either 3 or 5 years. We call this the “plan period.” Your plan period depends on whether or not you are above the state median income for a household of your size. If the debtor is above this threshold he/she is locked into a 5-year plan. If the debtor is below this threshold, they can choose between a 3 year or 5 year plan. To determine your plan payment we take a look at your monthly disposable income. This is the amount left over after you make all your necessary monthly payments, not including most unsecured creditors. This amount is what you pay into the Chapter 13 plan payment. There are various other factors that play into the plan payment that you should discuss with an experienced attorney. In a Chapter 13 Bankruptcy your general unsecured creditors are grouped together and get paid anywhere from 0%-100% depending on the payments you can sustain. Some secured creditors get paid “outside the plan” and others get paid through the plan payment.
The Relief From Chapter 13
During a Chapter 13 Bankruptcy your creditors are prohibited from contacting you. This means they cannot send your mail, call you on the phone or cannot harass you in any other way. This helps debtors to get back on their feet. At the end of the 3 to 5 year plan most of your unsecured debts are discharged. If you use the Chapter 13 to catch up on your mortgage arrears you will be caught up at the end of the plan.
Lien Strip: Another way a Chapter 13 can help is by stripping a second mortgage lien. In situations where the value of your home is less than your first mortgage, you can ask the court to treat a second mortgage holder as an unsecured creditor and strip the lien. This is a valuable tool for most debtors facing Chapter 13. The catch is that you must complete your bankruptcy and receive your discharge before the mortgage lien is stripped.
Life After Chapter 13
Like Chapter 7, life after a Chapter 13 will be, for the most part, debt free. The debtor will feel the relief of the fresh financial start. Their general unsecured debts will be discharged and they can move on with their life.
Contact us today if you are ready for your fresh financial start! We will schedule an appointment for you to talk to one of our experienced bankruptcy attorneys. We will help you start down the path of financial freedom.