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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 sad

Is it the only debt for which you are planning to file bankruptcy? If yes, then I would suggest you to check out the option of debt settlement first. This will help you in reducing your payments to a certain extent depending upon your situation, so that you can pay off the dues.

Thanks.
Posted on: 29th Jun, 2009 01:49 am
if i am late with my bankruptsy payment what will happen
Posted on: 18th Jul, 2009 06:35 pm
It has been 3 yrs and 11 months since filing a chapter 7 can i file the chapter 13
Posted on: 22nd Jul, 2009 07:58 pm
welcome,

to daisy,

if you're late with your bankruptcy payments, your bankruptcy can get dismissed.

to amgrag,

in order to file chapter 13 bankruptcy, you will have to wait for 4 years after the discharge of chapter 7 bankruptcy.
Posted on: 24th Jul, 2009 12:25 am
I HAVE EXTREMELY HIGH MONTHLY EXPENSES AND CRED CARD DEBT. I AM NOT LATE W/ CRED CARD PAYMENTS BUT SOME FINANCE CHARGES HAVE INCREASED. I HAVE NO PROPERTY. HOUSE, NOTHING BUT A CAR WITH 9000 LEFT ON THE LOAN.
WOULD YOU ADVISE CHAP 13 BANKRUPTCY?
MY OUTGOING MONTHLY PAYMENTS = APPROX 7500. MY TAKE HOME IS ONLY 4000.
IF I DO CHAP 13 I HAVE NO CREDIT. I HAVE NO SAVINGS AND LIVE PAY CHECK TO PAY CHECK.
ANY SUGGESTIONS?
Posted on: 28th Jul, 2009 08:27 pm
hi buddy,

you can file chapter 13 bankruptcy. it will help you to get your unsecured debts discharged. apart from this, you would get a new payment plan to pay off your mortgage and your car loan. however, before filing bankruptcy, it would be better if you could contact a bankruptcy attorney and take his opinion.

thanks
Posted on: 28th Jul, 2009 08:46 pm
If I have payday loans can if file Chapter 13?
Posted on: 02nd Aug, 2009 12:42 pm
Hi Teddy,

You can file bankruptcy though you have payday loans. These are unsecured loans and can get discharged after you file for bankruptcy. However, it is not a good option to file bankruptcy if payday loans are your only debts. You can contact debt consolidation companies to negotiate with your creditor so that you can lower your payments.
Posted on: 02nd Aug, 2009 08:34 pm
can you still keep two homes that you still owe on if filing chapter 13?
Posted on: 05th Aug, 2009 07:42 pm
Hi cheetah,

Though you file Chapter 13 bankruptcy, you will be able to keep both the homes. Both the lenders would give you a repayment plan to pay off the dues within 3-5 years.

Thanks
Posted on: 06th Aug, 2009 11:16 pm
I have bank accounts set up by my father before he passed away for me to take care of my mother who is in an ALF for alzheimers. Since these funds are in my name, do I have to show them as assets and would they be used for repayment?
Posted on: 18th Aug, 2009 09:28 am
if i file chapter 13 will this inclue my payday loans there killing me, i dont want to get in trouble for not paying them thanks.
Posted on: 18th Aug, 2009 01:15 pm
Hi,

To coni,

As far as I know, as the account is in your name, you'll have to list it as your asset. However, you can inform your bankruptcy trustee about the purpose of that account and check out if that account would be used for repayment of debts or not.

To anonymoussss,

If you file Chapter 13 bankruptcy, then you can include your payday loans into it. As it is an unsecured loan, it will get discharged.
Posted on: 18th Aug, 2009 09:25 pm
Our monthly 13 payment has caused my business to get behind on monthly obligations. We are 2+ years into it and have made timely payment until about 2 months into this year. They paid on the secured amounts such as back taxes, mortgage and car payments. We have yet to touch most of the unsecured credit card debt. If the case is dismissed and refiled to lower the payment by about half acording to my calculations can the credit card companies and their agents file claims for accrued interest from the date of original filing 2+ years ago and tack that amount on to their new claim when and if we re-file? What other options do we have since we are now facing dismissal due to default? Are my only 2 options to file an amended plan or get it dismissed and refile?
Posted on: 20th Aug, 2009 10:25 am
Our monthly 13 payment has caused my business to get behind on monthly obligations. We are 2+ years into it and have made timely payment until about 2 months into this year. They paid on the secured amounts such as back taxes, mortgage and car payments. We have yet to touch most of the unsecured credit card debt. If the case is dismissed and refiled to lower the payment by about half acording to my calculations can the credit card companies and their agents file claims for accrued interest from the date of original filing 2+ years ago and tack that amount on to their new claim when and if we re-file? What other options do we have since we are now facing dismissal due to default? Are my only 2 options to file an amended plan or get it dismissed and refile?
Posted on: 20th Aug, 2009 10:25 am
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