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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:
We've paid $74K on our Chapter 13 bankruptcy and have around $18k left or so.. We have one house on it which is is a secured debt, and one house that was not a mortgage but a credit card co. that we owed for it. We've fallen behind in the payments $6700 to the court, we've lately paid it more randomly than every 2 weeks bcuz of my income has ceased from my business, like we're supposed to and they have sent us a motion to dismiss letter from the court. Do you know how long do you have when they send a dismissal notice before they do it or is a dismissal letter mean it is already done? Do you think we can get with them and catch it up? We think with our tax money and all we can either catch it up or pay directly to the creditors if they do dismiss it.
The lawyers are trying to get us to refile bankruptcy, but we're so close, we really would rather work it out with the creditors. We should be getting a statement soon so we can tell who we owe and how much. Also, we want to use our tax money to help pay this off. That would be gone if we refile also.We don't want to refile again if possible. We realize a dismissal would affect our future credit, but we don't want to get any loans anyway. It could affect my husband's work abilitity with bad crdit but we really don't want to refile again, and would rather work with our creditors if they won't let us work it out. The lawyer will try to talk us our of a hardship, they won't let us do that either. Do people work it out with their creditors if not much is left

that they owe?
Posted on: 25th Mar, 2010 06:12 pm
Hi Cynthia,

I've given my suggestions in regards to your query at:
http://www.mortgagefit.com/bankruptcy/chapter13dismiss-refile.html#156994

Take a look at it. I hope it would help you.

Thanks
Posted on: 26th Mar, 2010 12:30 am
If I file chapter 13, and am on a payment plan for 5 years with my house included, will my house be paid for at the end of my bankruptcy?
Posted on: 02nd Apr, 2010 09:27 pm
The lender will give you a payment plan which will help you in paying off your debts within 3-5 years. Thus, you will own your property free and clear after you pay off the debts as per the plan.
Posted on: 05th Apr, 2010 02:51 am
Can I file chapter 13 if I am current on mortage, vehicle and other bills
Posted on: 11th Apr, 2010 09:29 am
Can a mortgage company get a relief from stay for past arrearages, if you are making payments to the bankruptcy court? Are they allowed to post current mortgage payments towards the amount that was included in the bankruptcy?
Posted on: 11th Apr, 2010 11:52 am
To young,

If you're current on mortgage payments and other bills, then it doesn't make any sense to me why you should file Chapter 13. If you're facing problems in paying off the dues, it's better to negotiate with the lender and get a payment plan.

To Cheryl,

A mortgage company will get relief from the stay if the court orders for the same or if your bankruptcy is discharged by the court. If you file Chapter 13, then you would get a repayment plan to pay off the loan. If you've filed Chapter 7, then you'll have to reaffirm the loan and pay off the dues to the lender and save the property. If you do not want to save the property, then you do not need to reaffirm it and let the lender foreclose the property.
Posted on: 12th Apr, 2010 02:23 am
can you include payday loans when filing chapter 13
Posted on: 13th Apr, 2010 09:43 am
As far as I know, you would be able to include the payday loans while filing Chapter 13. However, I would suggest you to contact your bankruptcy attorney and take his opinion.
Posted on: 14th Apr, 2010 03:37 am
I filed chapter 13 and put property and income taxes on there. I am paying all taxes back in full over 5 years. In which year do I claim those taxes as deductions?
Posted on: 15th Apr, 2010 09:27 am
I would suggest you to contact a tax adviser and your bankruptcy attorney in this regard and take their opinion. They will be able to guide you in a better way in this regard.
Posted on: 16th Apr, 2010 02:20 am
i have just completed yr 1 of a 5 year chapter 13 payment plan. i currently have a 350k mortgage on a 460 value home. my current mortgage is a 7/1 arm at 7.6%. i have a guaranteed income and a credit score of 640. what are the rules on refinancing? do i have to role the outstanding debt into the mortgage? how do i find a bank that does this? i believe an FHA loan will allow me to do this? please help direct me. thanks
Posted on: 24th Apr, 2010 05:46 pm
welcome vickie,

you will have to contact your present lender and apply for a refinance. as you're in bankruptcy, i don't think other lenders will be ready to refinance your mortgage. also, it will depend upon your present lender's discretion as to whether or not he would give you a refinance.
Posted on: 26th Apr, 2010 12:45 am
how do chapter 7 and 11 and 13 creditors get paid?
Posted on: 29th Apr, 2010 06:40 am
how do chapter 7 and 11 and 13 creditors get paid?
Posted on: 29th Apr, 2010 06:40 am
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