Chapter 13 Bankruptcy

Chapter 13 Bankruptcy, Generally

Protects you from foreclosure and auto repossession.

The debtor (person filing) must disclose on the bankruptcy petition, all assets and liabilities, including income and expenses. As with a Chapter 7, immediately upon the filing of a Chapter13 bankruptcy case, absolutely, no creditor may continue its collection efforts against the debtor. This means that upon the filing, all actions against you are “stayed”.

Generally, an individual would consider filing for Chapter 13 bankruptcy protection to save their personal property (i.e. automobile) that is in jeopardy of repossession, or a house that is in jeopardy of being lost in foreclosure.

Also, one may file a Chapter 13, if an individual is unable to meet the requirements of a Chapter 7. Generally, under this scenario, a person would be required to pay only a portion of their debt to the creditors in a Chapter 13 because they are unable to eliminate all debt in a Chapter 7.

Furthermore, a debtor may file a Chapter 13 for the purpose of paying off debt that is not dischargeable (eliminated) under a Chapter 7. The filing may provide a number of benefits (i.e. save your house, cram down of mortgages and other secured loans, etc.).

Chapter 13 requires a debtor to make monthly payments to a trustee (person that administers the case). The monthly bankruptcy trustee payments may last 36 to 60 months. The amount of the monthly payment and the number of months of the payments are based on various factors including, but not limited to: the amount of arrears on your mortgage and/or auto finance payments; the value of your assets; amount of debt; income, and expenses before and after the filing. Each month, the trustee disburses your payments to certain creditors, in compliance with the plan.

Typically, if an individual is keeping their house, in addition to their monthly trustee payments, the person is also required to pay their monthly mortgage payments directly to the mortgage company. If an individual is keeping a financed auto, they are required to continue paying the financing in some fashion. However, one might be able to discharge unsecured debt (i.e. credit card, personal debt). If the court requires that you pay any portion of the unsecured debt, the payment will be made through the monthly trustee payment. Generally, upon completion of all payments, the debtor receives an order discharging (eliminating) all unsecured debt, whether or not the unsecured creditors were paid any funds. Even though a specific kind of debt is not dischargeable, you may eliminate the debt by paying the debt through the monthly bankruptcy plan payment.

If one’s house is in foreclosure, a Chapter 13 stops the foreclosure action and allows the person to save the house by paying all mortgage arrears through the monthly trustee payments, over the life of the payment plan. As explained, above, the monthly trustee payment may include payments to other creditors. At the completion of all trustee payments, the mortgage should be brought current.