While some folks are forced to file under Chapter 13, many more choose to file under Chapter 13 because of its unique advantages over Chapter 7. With the help of a bankruptcy attorney, you devise a repayment plan to be executed over the course of three or five years. At the end of the bankruptcy, whatever debt hasn’t been repaid is discharged. In this article, we’ll discuss how Chapter 13 bankruptcy works.
Chapter 13 Bankruptcy: An Overview
Chapter 7 bankruptcy can only discharge unsecured debts like credit card bills and unpaid medical expenses. Chapter 13, on the other hand, has a built-in mechanism for handling secured debt, like car loans and mortgages. Like any bankruptcy, you are required to list all of your debts. Certain debts are given priority status while other debts (namely, unsecured debts) are given a lower priority status.
In the hierarchy of debts, priority secured loans, tax debt, and child or spousal support payments must be accounted for first. The bankruptcy court will consider your earned income and this will be used to repay the priority debts first. Whatever is left over will go to lower-priority unsecured debts.
Often, those filing under Chapter 13 are not required to repay all of their debts and can still get a discharge of some of their unsecured debt. On the other hand, they will be required to repay some of that debt whereas in Chapter 7, it would simply be discharged.
The Chapter 13 Repayment Plan
Chapter 13 is unique insofar as it allows you to retain possession of your home or your car without automatically forfeiting your right to either. However, you must be able to stay current with your mortgage or car payments while repaying any arrearages that may be present. If you file under Chapter 7, your options may be limited as far as keeping your home or car.
The repayment plan rolls all of your debts into one lump-sum payment that depends on your income. Essentially, Chapter 13 reorganizes or restructures your debt and forces your creditor to accept the plan. The consequence to you is that the Chapter 13 bankruptcy will remain on your credit report for the next seven years.
Your repayment plan is submitted to the trustee and the bankruptcy judge within 14 days of your filing. Your creditors will have a chance to object to the repayment plan if they wish. However, their ability to do so is limited by the law. Once your plan has been accepted, you will begin making scheduled payments.
Advantages and Disadvantages of Chapter 13 over Chapter 7
Logistically, Chapter 13 may provide the only means for you to keep your home or your car if you are struggling with serious debt problems. However, as soon as you file for bankruptcy, all creditor actions against you will stop. This includes car repossession and foreclosure on your home. While this is also true of Chapter 7, a creditor may file a request to lift the automatic stay if they can show that you have no desire or ability to pay off the debt. For instance, a mortgage lender may file a motion to continue foreclosure proceedings during a Chapter 7 bankruptcy giving you less time to deal with foreclosure.
In Chapter 13, you make a monthly payment to a court-appointed trustee who then distributes the payment in accord with the terms of your repayment plan. Unlike Chapter 7, you are not required to liquidate any valuable assets that you may have.
There are some disadvantages, however. Firstly, you will be expected to repay at least some of your unsecured debt. Your bankruptcy won’t be processed for at least three or five years, depending on your plan. Most of your money will be tied up in basic living expenses and repaying your creditors.
Talk to a Charleston, SC Bankruptcy Attorney Today
How does Chapter 13 work? The best way to figure that out is to talk to a bankruptcy attorney. We will sit down with you, assess your debts, ensure your qualifications, and then form a plan of action that allows you to recover financially from an unwinnable situation. Call The Steadman Law Firm, P.A. today for more details.