CHAPTER 13 BANKRUPTCY
Chapter 13 bankruptcy works a little different than Chapter 7. In a Chapter 7, the goal is to get rid of as much debt as you can. In a Chapter 13, the goal is to repay some or all of your debts over time, depending on your disposable income. This is usually the best option for people who need some time to catch up the payments on the mortgage loan or a house, or even delinquent car payments.
In order to get a Chapter 13 plan approved, you must submit all of your disposable income over the life of the plan, usually 3 to five years. You must pay 100% of your secured claims; 100% of your priority claims plus interest (these are usually tax claims); and you must also pay no less to your unsecured creditors what they would receive in a Chapter 7 liquidation.
Another reason people file Chapter 13 is because they have non-exempt equity in their house, or other things like cars, cash, stocks or other things that can’t be protected by your state’s exemption laws. The amount of non-exempt equity is determined by determining the fair market value of the asset (not replacement value) less any liens.
One of the advantages of filing a Chapter 13 is that you can also “cram down” the value of a car, and also strip off a completed unsecured junior lien on your house. If there is no equity in your house covering the 2nd, you can strip it off and treat as an unsecured claim.
The length of time that you’re in a bankruptcy is also different than in a Chapter 7. A Chapter 7 case lasts only about 3 1/2 to 4 months, while typically, your Chapter 13 is going to last anywhere from three to five years.
Once your case is filed, you make monthly payments to the Chapter 13 who then pays your creditors whatever dividend that they are going to get. It consolidates your payments and puts a stop to your creditors calling you, harassing you, or trying to pursue you any further.
While Chapter 13 is an option for many people, you have to be very careful about formulating and sticking to a budget. If you fail to make the plan payments as agreed, you can have your case dismissed and have to start all over.
For more information, please visit www.sactobankrkuptcy.com. We’ll be happy to give you a free evaluation to help you decide what options are available to you.
