Chapter 13 bankruptcy functions like a debt consolidation plan under court supervision for individual debtors who have a regular source of income that can be used to repay some portion of their debts.
When you file for Chapter 13 bankruptcy protection, you propose a plan that details how much you are going to repay creditors over the next three to five years based upon how much you earn, how much you owe, and how much your unsecured creditors would have received if you had filed for Chapter 7 bankruptcy protection.
Chapter 13 may be a better option than Chapter 7 if you:
- Are behind on mortgage or car loan payments, but want to save your home from foreclosure or your car from repossession. To make this work, your repayment plan must demonstrate that you will have enough income in the future to make up the missed payments over time while staying current on your regular monthly payments.
- Are seeking to “strip off” a wholly unsecured second mortgage on your home. A Chapter 13 repayment plan may be able to eliminate a second mortgage on your house if the mortgage debt is not supported by the value of the house. For example, if your house is worth $250,000 and you have a $300,000 first mortgage and a $50,000 home equity line of credit (HELOC), the $50,000 HELOC may be “stripped off” in Chapter 13.
- Are seeking to “cram down” other secured debts that exceed the value of the property that secures them. A Chapter 13 repayment plan may be able to reduce a secured debt to the replacement value of the property securing it, and then eliminate that “crammed down” debt through regular monthly payments. For example, if you owe $9,000 on a car loan and the car is worth only $6,000, you can propose a plan that pays the creditor $6,000 in 60 monthly installments (plus interest). However, you cannot cram down a car loan if the car (new or used) was purchased approximately 30 months prior to your bankruptcy filing. Other restrictions apply to cram downs of other types of personal property.
- Have significant non-“exempt” assets that you would not be able to retain in Chapter 7. You don’t have to give up any property in Chapter 13 because you use your future income to fund your repayment plan.
- Owe significant back taxes and are unable to negotiate a payment plan with the IRS.
Would otherwise benefit from a court-supervised “debt settlement” plan.
To Learn How Chapter 13 Bankruptcy Can Help You, Contact Us For A Free Initial Consultation
The Balbus Law Firm is dedicated to analyzing your financial situation and developing a Chapter 13 repayment plan that maximizes your financial future. To discuss bankruptcy and debt repayment in a free initial consultation, call 203-286-4121 or e-mail us.
Balbus Law Firm is a debt relief agency. We help people and businesses in New York and Connecticut file for bankruptcy relief under the Bankruptcy Code.