The Chapter 13 bankruptcy, also known as a debt repayment plan or debt adjustment plan, is the second option available in Bankruptcy Court that would assist consumers in obtaining relief from their creditors. Those who do not qualify for Chapter 7 relief usually qualify for Chapter 13. In some cases Chapter 13 is more advantageous than a Chapter 7 bankruptcy filing.
In Chapter 13, as in Chapter 7, a petition is filed with the Bankruptcy Court. In the petition you set forth your budget, listing your net income and your on-going living expenses. The difference between these two figures will be your monthly payment to the “Chapter 13 Trustee”. This person distributes your monthly payments to creditors, in accordance with the instructions you set forth in a document called a “Chapter 13 Plan”. Any number of factors can effect how long the payments will continue, but said payments must be for a minimum of 36 months and a maximum of 60 months.
There are several reasons why you may want to consider a Chapter 13 bankruptcy filing, rather than a Chapter 7, such as:
-you are not eligible for a Chapter 7 filing (see Page 3 of this website)
-if you are behind on your mortgage and want to keep your residence, you may be able to stop any foreclosure proceedings and pay the arrearage through the Chapter 13 Plan.
-if you are behind on your auto debt and cannot become current before you file a Chapter 7 bankruptcy, filing a Chapter 13 would enable you to restructure your auto debt, at which point you would be considered current.
-you have an excess amount of equity in real estate or other property that could be taken in a Chapter 7 bankruptcy. You can retain this property in a Chapter 13, provided a sufficient amount is paid to creditors through the Plan. (See Page 5 of this website for further discussion of what property is protected in a Chapter 7.)
-in the event the payoff balance of your first mortgage is greater than the recent appraised value of your residence, you might be able to “strip off” any second mortgage, and essentially have it converted to an unsecured debt. (This is not permitted in a Chapter 7 bankruptcy filing.)
Of course the only way to determine which type of bankruptcy filing you would qualify for, and which would be better for you, is to discuss this in depth with an attorney of your choosing. You will also need to review with an attorney to see if you would be able to make the payments to the Chapter 13 Trustee that would be required of the Plan you propose.
Once the payments under the Plan are completed, and you have met all other requirements, an order of discharge will be issued for the remaining balances on your unsecured debts (with certain exceptions, such as student loans). This would have the same effect as a Chapter 7 discharge order.
