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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:
My attorney tells me that I can not stay in Chapter 13 because a note I have on land will be up for renewal in january. We were scheduled to meet with judge and trustee for approval of plan and one of lien holders objected to my real estate brokers comission 10 minutes before hearing. I am being told due to this objection it will be too late when case is brought up again in Jan. Help! What are my rights? I owe around 530,000 in debt on note and have had $90,000 in sales which bank refuses to release property to decrease loan.
Posted on: 16th Dec, 2009 07:01 pm
Welcome edith,

As far as I know, when you file bankruptcy, the court will issue an automatic stay order and your lenders/creditors will not be able to sue you for your debts. I would suggest you to speak to your bankruptcy attorney and take his opinion in this regard. He will be best person to guide you in this regard.
Posted on: 16th Dec, 2009 07:57 pm
I have two credit cards at 13,000 and 10,000. I can no longer afford to pay them and the interest is growing. My BK attorney's flat fee is 3274 with 774 down and 215 for 60 months, estimated by my attorney. does these numbers seem about right. I didn't include my car in the chapter 13. This was at my free meeting. I talked to the CC companies and they either would not budge, or wanted direct access to my checking account. What is my best options. 215 is gonna be tough.
Posted on: 17th Dec, 2009 04:22 pm
Hi Ruth,

I would suggest you to negotiate with your credit card company and check out if they can give you an affordable repayment plan to clear off the dues. If they do not, then you always have the option of filing Chapter 13 and getting your credit card debts discharged.

Thanks
Posted on: 17th Dec, 2009 08:19 pm
During a modification can I add on medical bills incured after the original filing date?
Posted on: 24th Dec, 2009 08:46 am
if i file for chapter 13 will i get to keep items such as my truck and my motorcycle
Posted on: 27th Dec, 2009 06:34 pm
Hi Randy,

As far as I know, if you find out that an entry is inaccurate or missing, you can file an amendment to correct it. However, you're submitting the petition under the penalty of perjury, so you should take care with your initial filing.

Hi eric,

You will get a repayment plan from your lender after you file Chapter 13. If you pay off your debts according to the repayment plan, you will be able to save your truck and your motor cycle.
Posted on: 27th Dec, 2009 11:52 pm
in a chapter 13 if you up todate with boat and camper payment are you allowed to keep them?
Posted on: 08th Jan, 2010 01:34 pm
Hi meto,

If you're up to date with your boat and camper payment, you'll be able to keep them. You'll have to list them as your assets but you won't have to include them in your bankruptcy filing.

Thanks
Posted on: 08th Jan, 2010 11:01 pm
i have a second mortgage that is charged off. i owed 75000 and the original pmt was 650 a month. can i use this in calculatilng a means test for chapter 7 bankruptcy?
Posted on: 18th Jan, 2010 09:27 pm
Hi lbenny!

Welcome to forums!

You will be able to include your charged off amount in Chapter 7 and will also be able to get it discharged. As the charge off amount is a debt that you still owe, you can use it while calculating your means test. You need to contact your bankruptcy attorney and he will help you in doing the calculation in regards to the means test.

Feel free to ask if you've further queries.

Sussane
Posted on: 19th Jan, 2010 11:06 pm
i filed ch.7 on 2003. im behind on my mortgage due to illness . i owe 214,000 on my first mortgage and 92,000 on my 2, can i discharge my second completely? :?
Posted on: 25th Jan, 2010 01:35 pm
i filed ch.7 on 2003. im behind on my mortgage due to illness . i owe 214,000 on my first mortgage and 92,000 on my 2, can i discharge my second completely?
Posted on: 25th Jan, 2010 01:45 pm
Hi angel,

I guess you want that the bankruptcy court should strip off the second loan completely. However, this is not possible in case of Chapter 7. If you file Chapter 13, you would be able to strip off the second loan completely if you do not have equity in the property.
Posted on: 25th Jan, 2010 10:47 pm
Just did a loan modificaton or loan restructure through a Non-profit organization called NACA. Anyone can go to the website Naca.com and get help. The help is free! It did take awhile to do the restructure of our mortgage, but with this place you don't need to be late, or in foreclosure to start a restructuring of your loan. What ever kind of situation you are in they can help. They are advocates for the consumer. They fight against banks who are predatory lenders, subprime, ect... The good news is is that my loan went from $1853.00 a month to 1422.19 a month, mine isn't the best they've done but its good enough for me! They can usually cut your payment down 500.00 to 1000.00 a month. I also had my interest rate reduced from 6.1 percent to 2.88 percent fixed for the remaining life of the loan, 25 years. There was no cost for me to this, no closing, no nothing! The founder of the organization is Bruce Marks, google him and you will find out this is not to good to be true!!!! He wants to save americans their homes and make their mortgages affordable. He calls himself a bank terriorst. He believes that most banks in recent years set mortgages up for failure on purpose, and now thousands of people have lost their homes and bank exec.s got richer. Just check out NACA website you will be glad you did. There is hope.
Posted on: 27th Jan, 2010 02:36 pm
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