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Chapter 13 bankruptcy - How to keep assets and repay debt

Posted on: 09th Nov, 2005 02:27 am
When you're experiencing debt problems and cannot make the payments in full, or as fast as your creditors want, you might want to file Chapter 13 bankruptcy. To learn what it's all about, take a look at the Chapter 13 bankruptcy information below:

Chapter 13 bankruptcy definition

Unlike Chapter 7, Chapter 13 bankruptcy doesn't require you to sell off assets to pay off your debts. Instead, the court appointed trustee negotiates a repayment plan with your creditors that will allow you to repay your debts within 3-5 years. Chapter 13 is essentially a court supervised repayment plan.

When to file Chapter 13

You can file chapter 13 if you're in any of the following situations:
  • Your debts cannot be discharged in Chapter 7.
  • You have property lien exceeding the value of the collateral.
  • You haven't filed taxes for years.
  • You intend to pay off your dues on mortgage/car loan.
  • Your total asset value exceeds the exemptions.
  • Your income is high enough for filing Chapter 7.
  • Most of your assets are non-exempt, and may lose them if you file chapter 7.

How to qualify for Chapter 13

You qualify for Chapter 13 bankruptcy if you satisfy the following:
  • Credit Counseling: You must enroll in a credit counseling course 6 months before filing Chapter 13.

  • Means Test: Your gross monthly income should exceed the State Median Income of your family size. Find out more on how to check whether you qualify for Chapter 7 or 13.

  • Secured and Unsecured debt: In order to qualify for Chapter 13, you must have less than $360,475 in unsecured debts and less than $1,081,400 in secured debts.

  • Previous filing: You can file another Chapter 13 case 2 years after a previous Chapter 13 case has concluded and 4 years after Chapter 7 case has been discharged.

How Chapter 13 Plan works

In addition to the other filing requirements for Chapter 13, you must also provide a proposed repayment plan either at the time of filing or within 15 days of filing. The proposed repayment plan should also be submitted to those creditors whose obligations will be included in the bankruptcy estate.

Your debts must be repaid according to the statutory repayment priority as given below:
  1. The Bankruptcy Court: The first creditor to be repaid in a bankruptcy case is the court. This includes the filing fees and the money owed to the bankruptcy trustee for his/her services in managing the case.

  2. Support obligations: These are obligations that have arisen due to a court ordered obligation, usually spousal or child support back payments.

  3. Back Taxes: These are any amounts you owe to the IRS or state taxing authorities due to unpaid taxes.

  4. Unsecured creditors: The last group to be paid is your unsecured creditors. In some cases you may be obligated to pay interest to your creditors due to the automatic stay.
When creditors can reject your plan
Creditors can reject your Chapter 13 Plan only if:
  • The Plan materially alters the terms of the debt or requires the disposal of a lien before repayment.
  • The amount offered under the repayment plan is less than the creditor would receive under Chapter 7.
  • The creditors have evidence that the Chapter 13 repayment plan was not proposed in good faith.
Most of the creditor's objections to your proposed plan are resolved through negotiation between your creditors and the trustee. If the parties cannot compromise, the judge decides whose interest should control.

How much to pay in Chapter 13 plan
Most of your creditors, especially the court and any judgment debtors (like an ex-spouse), will be entitled to 100% of the amount you owe them. How much your unsecured debtors are entitled to depends on the amount of disposable income you have to put toward the plan every month and how long your plan lasts. The time it takes for you to repay all of your debts under a Chapter 13 bankruptcy plan depends on how much you can afford to pay each month.

When to start payment
You need to make the first payment to the trustee within 30 days of filing Chapter 13. Within 40-45 days of the 341 meeting with your creditors, the bankruptcy trustee and judge will confirm whether or not your plan is acceptable.

Plan modification & Hardship discharge
You can get the trustee's approval to modify the plan if you have severe hardship like a serious illness or you lose your job. However, if you're unable to complete the plan due to reasons for reasons beyond your control, and if modification isn't possible, you can request a Hardship discharge. In order to get a hardship discharge, your creditors must have received as much as they would have if you had filed for Chapter 7.

Pros and Cons of filing Chapter 13

There are several pros and cons to filing for Chapter 13 are:

Pros:
  • Pay back debts: You repay debts in lower payments.
  • Stops legal action: You are protected from collections, judgments, foreclosure, etc.
  • Retain assets: Real and personal property can be retained.
  • Additional debts discharged: Debts nondischargeable in Chapter 7 can be discharged in Chapter 13. These debts include those for willful and malicious injury to property, debts due to a property settlement in divorce or separation, and those incurred to pay nondischargeable tax liabilities.
  • Protect cosigner: Cosigners on credit cards, payday loans, and other consumer debts are protected under Chapter 13.
  • Tax deduction: You will not have to pay taxes on debt forgiven during bankruptcy.

Cons:
  • Tax Liens: You will not be able to avoid paying any tax liens during Chapter 13.
  • Dismissal: If you stop making payments under Chapter 13 Plan, the court can dismiss your case or convert it into a Chapter 7 bankruptcy. Your case can also be dismissed if you don't pay post-filing obligations such as alimony, child support, or taxes. Learn about Chapter 13 dismissal.
  • New credit: You cannot take out new credit and incur new debt without court approval.
Chapter 13 bankruptcy helps you restructure your debt payments and become current on your debts. Chapter 13 has less of an impact on your credit score than Chapter 7. However, prior to filing, make sure it is the only way you can get rid of your debts.

Related Forum Discussions:
Hi. i have recently got a lien against me with not paying a 3500 dollar bill. tcan they take any money out of my account if i have a joint account ith my boyfriend? he has added me recently, and he had the account for a while though. is this possible? should i take my name off ? :cry:
Posted on: 21st May, 2009 12:02 pm
anonymous, if you neglect to pay this lien, then the creditor will have the right to take from any account you may have. if that includes an account that is joint with your boyfriend, then the answer is yes.
Posted on: 21st May, 2009 12:56 pm
Are such assets subject to forfeiture or liquidation to pay off debts in a Chapter 7 or Chapter 13?
Posted on: 26th May, 2009 03:47 pm
Hi john!

Welcome to forums!

As far as I know, your 403(b) will not effected if you file for Chapter 7 or chapter 13 bankruptcy. However, it would be better if you could consult a bankruptcy attorney and take his opinion in this issue.

Feel free to ask if you have further queries.

Sussane
Posted on: 26th May, 2009 09:33 pm
CAN I FILE A CHAPTER 13 IF MY MORTGAGE & CAR PAYMENTS ARE CURRENT BUT MY UNSECURED DEBT IS 30+ DAYS PAST DUE?
Posted on: 02nd Jun, 2009 06:04 am
My parent gave a former employee a loan to purchase a home almost 20 yrs ago. Their payments were only $325.00. Since my father died 16 yrs ago I've inherited this. She has consistantly been late with payments and as of July 2007-2 yrs ago she hasn't made a payment. We were literally sending this to the sheriff's office this week-have done all the preliminary paperwork-have been working on this since Aug 2008-so it could be put on the block for sheriff's sale-the final step in foreclosure but we received paperwork today that she had filed chapter 13. If she hasn't even made an effort to pay $325 in almost 2 yrs-there is no penalty on this mortgage would any judge approve this? There is no good faith in this at all! Where can anyone even rent an apt for 325/month let alone a house on 2 acres? What are the chances of her getting denied? She's already applied for assistance federal/state and got denied. Thanks for the info I have to wait for a meeting with the attorney.
Posted on: 02nd Jun, 2009 03:48 pm
Hi,

To LISA,

In my opinion, it is not a good option to file bankruptcy just because your unsecured debts are 30 days behind. I would suggest you to speak to your creditor and check out if he can offer you an alternative payment plan.

To Maggie,

As she had filed for Chapter 13 bankruptcy, you won't be able to continue with the foreclosure procedure now. However, you can apply for the removal of automatic stay. If the court accepts this, then you can continue with the foreclosure procedure and thereby sell off the property.
Posted on: 02nd Jun, 2009 11:37 pm
we made the mistake of investing in a piece of vacant property on a 3 year arm. when it came time to refinance the bank wanted $20k down and bigger payments. we couldn't afford this so had to let it go back to the bank. recently they've contacted us as they are going after us for the difference between what it sold at auction and the value. a total of 50k.

now they say they want 10k down and payments. we don't have any savings, i was in and out of hospital last year and my business fell flat. so we only have my husbands income and bills up the rear-end.

we do have 3 other pieces of investment properties that were actually my mothers but she transferred over to me. we are more then willing to sign one of these over to the bank or put it up for sale and give the proceeds to the bank once sold but in today's climate who knows when that will be.

so the other option we are thinking about is chapter 13. could we do this and not loose all the other properties one being my mom's house? it's so frustrating before this my husband and i had perfect credit, at the top of the scale. we were never late or missed a payment on anything and now it looks like we could loose everything because of this one bad investment.
Posted on: 05th Jun, 2009 12:31 am
Hi btwr.

I can understand that you are facing a tough situation right now. I would suggest you to speak to your lender and convince him to forgive your deficient amount. Inform him about your hardship. There are chances that the lender may forgive your dues.

If you file Chapter 13, then you should not include the 3 investment properties that you received from your mother. This may help you in saving those properties. However, before taking any step, make it a point to consult a bankruptcy attorney.
Posted on: 05th Jun, 2009 10:35 pm
Thank you adonis. It's gotten past the point of talking to the lender as they have hired an attorney which of course forced us to have to hire one too, more expense. It seems that they are going after it all, the difference on the property, their attorney fees etc.

We have decided we are going to go to them with an offer of payments no more then $450.00 a mth as that is all we can afford using one of the properties as collateral. Then put one of the other properties up for sale and when we sale it pay off what we owe. Also point out to them that up to now our credit has been exemplary and that when the loan first came due we did try to refinance but they wanted 20K down and we couldn't do that. Also that if they won't accept this we won't have any choice but to go Chapter 13. We are just hoping they will go for this. After all it's not like we are trying to get out of it but hell they have to be realistic about this. Or maybe they will just laugh in our faces.
Posted on: 06th Jun, 2009 12:32 am
Hi btwr!

Welcome back to forums!

I wish you all the best in your attempt. :) I hope that the lender accepts your offer so that you don't have file bankruptcy.

Sussane
Posted on: 07th Jun, 2009 10:28 pm
I am so confused, I got behind on my house pymt. The lender sent my payment back due to now it was in forclosure. 8 month behind I filed chapter 13. I only had around 4,000.00 unsecured debt. My house pymt was 1500 a month now I'm paying around 2400 month for 5 years how can that be? Thank u
Posted on: 11th Jun, 2009 01:01 pm
Hi Annie,

The lender must have given you a new payment plan after you filed for Chapter 13 bankruptcy. The new payment plan will help you come current on your mortgage payments. You could have negotiated your payments with your lender when he gave you the new payment plan. I guess, as 5 years have passed, you must have paid off most of your mortgage dues.

Thanks
Posted on: 11th Jun, 2009 09:54 pm
I am behind in my mortgage payments and tried to work it out with my lender; however they have stated that I only qualify for a short sale or deed in leiu. Which is the better of the two options?
Posted on: 23rd Jun, 2009 12:26 pm
can i file with $200,ooo in credit card debt
Posted on: 25th Jun, 2009 06:24 am
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