Compare Mortgage Quotes

Refinance Rates for Today

Please enable JavaScript for the best experience.

In the mean time, check out our refinance rates!

Company Loan Type APR Est. Pmt.

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:
If I switch from chapter 13 to chapter 7 when can I stop making chapter 13 payments?
Posted on: 07th Oct, 2009 07:49 am
marie...you need to contact your bankruptcy attorney regarding this. He will let you know when you need to stop your payments under Chapter 13.
Posted on: 08th Oct, 2009 02:15 am
If my husband gets a bonus and we have already been assigned to a payment plan in Chapter 13, is it okay to have a savings to help us suppliment our income. Our payments requirements, mostly due to our large mortgage payment, are making it very tight. If I could have a cushion in our savings account it would assure us that we won't miss a payment and we would have funds available for emergencies. Is this considered okay?
Posted on: 17th Oct, 2009 08:10 pm
I would say yes.

If you can meet the requirmentns are required and do nto default, then you shodul nto have any issue
Posted on: 18th Oct, 2009 01:57 am
Filed for bankrupcy chapter13 and my car debt is being payed. recently was in a car accident and the car is a total loss. being offered a check from my insurance but it was said that the check should be turned over to the trustee to pay off the car debt leaving possibly no money for a new car ! What can be done, do i not get any of the money to at least buy a used car?? :cry:
Posted on: 26th Oct, 2009 05:52 pm
Hi worried,

I think you should follow the instructions given to you by the insurance company. If you use the money for any other purpose, there are chances that it would be considered as a fraud. You can even speak to your bankruptcy attorney and take his opinion in this regard.

Thanks
Posted on: 26th Oct, 2009 09:06 pm
MY HUSBAND AND I ARE GOING TO FILE A CHAPTER 13 THIS MONTH. IF WE ARE ACCEPTED AND GET A PAYMENT PLAN AND HE GETS A RAISE OR BONUS AND WE START MAKING MORE MONEY, DO THEY TAKE THAT ALSO?
Posted on: 30th Oct, 2009 05:53 am
Hi LINDA,

As far as I know, the lender would give you a payment plan depending upon your present financial situation. If you make more money later on, then you can make some extra payments (with due permission from the lender) and pay off the dues early.

Thanks
Posted on: 01st Nov, 2009 10:54 pm
my question is once a request is made to convert from chapter 7 to chapter 13 what happens nex?t..does the court give me a written approval to convert from 7 to 13?
what does a replanment plan look like(where can i find examples)?
if my pay is being garnished because of a repo. is the balance considered a secure debt or unsecured debt?
Posted on: 10th Nov, 2009 05:29 am
hi msbmore!

welcome to forums!

you or your attorney will have to fill out a form regarding conversion of chapter 7 bankruptcy into chapter 13. the court will inform you whether or not your request is accepted. as far as the i know, if the vehicle is already repossessed by the lender, then wage garnishment would be considered as an unsecured debt.

feel free to ask if you've further queries.

sussane
Posted on: 10th Nov, 2009 10:48 pm
if mortage is in chapter 13 after 3 yrs of plan will my mortage rate still be 740 a month after chapter 13
Posted on: 16th Nov, 2009 04:20 pm
Hi mrsjubee,

You would get a repayment plan from your lender to pay off the mortgage dues when you file Chapter 13. You will have to pay the dues according to that and clear off the mortgage payments.
Posted on: 16th Nov, 2009 09:13 pm
Can I file a chapter 13 on a mortgage that has more then 1 lien on it.
Posted on: 11th Dec, 2009 07:03 pm
Hi Guest,

Though your property has two liens on it, yet you can file Chapter 13. You can contact your bankruptcy attorney and he will guide you in taking the right steps.

Thanks
Posted on: 13th Dec, 2009 10:00 pm
we totaled our2002 van and it has a lien on it the insurance co has contacted us with the amount do we pay off the lien or are we allowed to purchase another vehicle with insurance check
Posted on: 16th Dec, 2009 08:41 am
Page loaded in 0.165 seconds.