What is Chapter 13 Bankruptcy and what are the Benefits?
A Chapter 13 Bankruptcy is often considered a reorganization bankruptcy due to the fact that the debtor is attempting to reorganize their debts by offering the creditor partial or full repayment through a repayment plan. The repayment period will depend on your income, expenses, and the amount of debt that you will need to repay. The typical repayment plan is 3-5 years. This type of bankruptcy is often called a “payment plan” bankruptcy. Again, this is usually a partial or full repayment plan, meaning you may not have to repay all of your debts.
In short, what happens is the debtor must pay a bankruptcy trustee all of their monthly disposable income for the next three years to five years, and the trustee uses the funds to pay the debtor’s creditors. Then after the three to five years are up, all of the debtor’s dischargeable debt is discharged.
There are some benefits to filing a Chapter 13 Bankruptcy, and the benefits are as follows.
- If you have a second mortgage, that is “wholly unsecured” meaning that there is no equity in the second mortgage, then you can “strip” or remove the second mortgage. In order to obtain this benefit, you must make all of your Chapter 13 plan payments.
- If you have investment properties, then it does not matter whether or not there is a second mortgage on the properties. You will be able to reduce the value of your mortgages to fair market value so long as you make all of your Chapter 13 plan payments.
- If you have an adjustable rate mortgage, the lender is not obligated to modify your mortgage, but the mortgage company may be more willing to negotiate with you so as to avoid foreclosing on the property.
- If you have a car in which you owe more than it is worth. In a Chapter 13 Bankruptcy you may be able to “cram down” or modify the auto loan to the fair market value of the vehicle.
Although there are memories and sentimental attachments to your home, it may be a better financial decision to walk away from the home and purchase one when you can better afford it.
To learn more about the Chapter 13 Bankruptcy process, click here!
Please feel free to contact us today so that we may discuss the options that are available to you.
Van and Associates Law Firm at 702-529-1011