Bankruptcy – What is Chapter 13?

Chapter 13 Bankruptcy – also known as reorganization or “wage earners” bankruptcy – requires you to pay your “disposable monthly income” into a Chapter 13 Plan for a period of up to five years.  Chapter 13 Bankruptcy works best for people who have a steady, reliable income.  In most cases the payments made to creditors only amount to a small percentage of what is owned to the creditor.  After completion of the Chapter 13 Plan, whatever debt that remains is discharged and creditors are forever barred from seeking repayment.

The Chapter 13 Process

Much of the Chapter 13 process is similar to the Chapter 7 process. However, in addition to filing the bankruptcy petition with the Court, a Chapter 13 filing requires you to propose a Payment Plan – commonly referred to as “the Plan.” The amount of the plan payment is determined by the debtor’s disposable monthly income and non-exempt assets as well as the amount of secured and priority debts the debtors intends to pay through the Plan. The Chapter 13 Trustee has developed a computer program that helps us figure out as closely as possible what your required Plan payment may be. At Owens / Pinzelik, P.C. we tailor a Plan to meet your financial needs.

While a Chapter 7 Bankruptcy is usually preferable because it is quicker and less expensive, Chapter 13 Bankruptcy can benefit you in the following ways:

  • If you are behind on mortgage payments, a car loan, or face significant tax debt, often you can “catch up” on the payments through the Chapter 13 Plan.
  • If you purchased your car more than 2 ½ years ago, you may only have to pay the amount the car is worth – as opposed to the amount you owe for the car. This is particularly helpful if you are paying off an older car. It makes the car more affordable for you.
  • In some cases, a Chapter 13 will allow you to strip (or get rid of) a second or third mortgage on your residence leaving you with a significantly smaller monthly mortgage obligation. This provision is not available in every situation. Your ability to “strip a lien” depends on the current value of your home and the balances of any mortgages.

Filing Chapter 13 Bankruptcy and preparing a Chapter 13 Plan takes careful preparation and experience. Only an attorney experienced with the complexities of Chapter 13 should advise you whether Chapter 13 Bankruptcy is right for you.

For informational purposes only and not to be relied upon as legal advice.

by John A. Pinzelik

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