A Chapter 13 Bankruptcy is often considered a reorganization bankruptcy since the debtor is attempting to reorganize their debts by offering the creditor partial or full repayment through a repayment plan. This option is used when you do not have many other choices and would like to reduce the loan balance on your mortgage or strip the lien from your mortgage. The repayment period will depend on your income, expenses, and the amount of debt that you will need to repay. The typical repayment plan under Chapter 13 is three-to-five years. This type of bankruptcy is called a “reorganization ” bankruptcy. This reorganization is usually a partial or full repayment plan, meaning you may not have to repay all of your debts.

Benefits of filing Chapter 13 Bankruptcy

The benefits of filing Chapter 13 Bankruptcy are as follows: 

  • If you have a second mortgage, that is “wholly unsecured,” which means that there is no equity in the second mortgage, Chapter 13 will allow you to “strip” or remove that second mortgage. You will be required to make all Chapter 13 plan payments.
  • If you have investment properties, you will be able to reduce the value of your mortgages to fair market value as long as you make all your Chapter 13 plan payments.
  • If you have an adjustable-rate mortgage, then the lender is not obligated to modify your mortgage. However, a mortgage company may be more willing to negotiate with you to avoid foreclosing on the property.
  • If you own a vehicle that you owe more in loans than the vehicle is worth, you may be able to modify the auto loan or “cram down” to the fair market value. 

What to Know Before Filing for Chapter 13 Bankruptcy

Before filing under chapter 13, you are required to undergo a credit-counseling course.

To file for this type of bankruptcy, debtors must pay fees associated with the cost of the case of $310.00 plus lawyer’s fees. This filing will stay on the filer’s credit report for seven years.

The bankruptcy paperwork includes forms listing financial information, assets, income, expenses, and property exemptions.


Repayment Plans

Debtors who file for a Chapter 13 bankruptcy will have to come up with a repayment plan proposal to pay back their debts over some time from three to five years. The duration of each individual’s plan is calculated based on the debtor’s total and disposable income, expenses, along with the amount of debt that you will need to repay. People with income below the state’s median are typically approved for three-year repayment plans, while those with income above the median are approved for five-year plans.

After a bankruptcy court judge grants your repayment plan proposal, the court will hold a meeting of creditors who may agree or object to the plan. However, they must allow an opportunity for repayment.

Stop Collection Actions

After the debtor files for Chapter 13 bankruptcy, an automatic stay will go into effect. This filing will prevent creditors from collecting activities such as phone calls, threatening letters, or lawsuits. This filing could help discontinue other actions such as foreclosures, repossessions, service shut off, or loss of property.

Dischargeable Debt

A Chapter 13 repayment plan requires debtors to pay back all of their debts. The court will decide if you can make the monthly payment on your own or will withhold the amount from your paycheck for the next three to five years. However, in certain circumstances, if you follow the rules and do not miss any payments, some remaining unsecured debt such as credit cards and medical bills may be discharged at the end of your repayment plan period.

Like Chapter 7 bankruptcy, there are certain types of debts, such as child support, tax debts, student loans, and bankruptcy filing costs that will not be discharged.

Our attorneys at Debt Rescue Law will help you negotiate with your creditors to get the best outcome possible. Contact us at (833) 707-1234 today.

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