Chapter 13 bankruptcy is a repayment plan that offers distinct protections under the Federal Bankruptcy Code, allowing a debtor to reorganize debt and pay creditors in an affordable manner. Chapter 13 bankruptcy is also called a wage earner's plan because one requirement for a debtor to qualify for a Chapter 13 bankruptcy is that he must make a regular ongoing monthly income in order to make ongoing monthly Chapter 13 plan payments on his debt. The amount to be repaid monthly and the length of repayment vary greatly from case to case depending on the debtor's goals and income.
One major benefit of Chapter 13 is that the debts repaid in the Chapter 13 plan are not necessarily paid back under the same conditions that existed prior to filing, instead the Chapter 13 plan restructures the debt so that the debtor repays often under more favorable conditions, such as lower to no interest rates. Other benefits include the opportunity to remove junior liens from secured property, such as second mortgages and home equity lines of credit. The Chapter 13 restructuring process also affords the debtor the opportunity to keep his property, such as a house or a car, even if he is behind on payments when the case is filed; even if a foreclosure judgment has already rendered or a vehicle has already been repossessed! If you find yourself in this position, time is of the essence and you need to meet immediately with a Columbus bankruptcy lawyer at The Nesbitt Law Firm to discuss your rights and remedies under the law.
A Chapter 13 repayment plan can last an average of 3 to 5 years. During the repayment plan, paying off debt is prioritized according to the debtor’s goals. For example, vehicle payments and mortgage payments are paid every month. Other payments to creditors like the IRS or state tax debt will be paid as soon as additional funds are available to direct to the tax creditor. Finally, general unsecured creditors like credit cards, medical bills, and others will be paid toward the end of the repayment plan after all mortgage arrears, vehicle loans and tax debts are paid off. The general unsecured creditors usually do not receive 100% of the balance owed on the account and instead get only a percentage of the debt that was owed at the time the debtor filed for bankruptcy relief. Further, there is no interest paid on general unsecured debt for insolvent debtors. For example, in a 10% repayment plan, a debtor who owes $20,000 in general unsecured debt will pay only $2,000 and the rest will be discharged at the completion of the plan. Overall, the purpose of the Chapter 13 is to allow debtors to pay off loans for property they wish to keep and shed credit card, medical bill, and other unsecured debt that would otherwise take many years, if not decades to pay off. Chapter 13 plans can be customized in many ways to ensure that your goals can be met with a plan that will finally get you out of debt for good!
Other considerations in lending to the decision to file a Chapter 13 include the ability to repay debt in the Chapter 13 plan that may not be dischargeable in a Chapter 7 bankruptcy. Examples of these non-dischargeable items include past due child support and past due income tax debt. Unlike a Chapter 7, a Chapter 13 bankruptcy filing will allow the debtor to rebuild credit during the time the case is pending, timely Chapter 13 plan payments, timely payments on loans taken after filing and during the time the plan is pending, such as auto loans, and the general decrease in overall debt during the life of the Chapter 13 plan lend favorably to boost the debtor's credit score with the credit bureaus. Thus, your fresh start under Chapter 13 bankruptcy can begin the day that you enter into the Chapter 13 repayment plan.
"A Chapter 13 bankruptcy cannot help me, I cannot afford to repay all of my debts, even over 36-60 months." Most Chapter 13 bankruptcy cases do not require a debtor to repay all of his debt, but only a portion of his debt. The purpose of the Chapter 13 plan is to provide the honest debtor, seeking relief in good faith, with the opportunity to repay only what he can afford. Often times, the payments a debtor makes to his Chapter 13 plan go directly to mortgage or car payments for the majority of the case. Once those creditors are paid according to the terms of the plan, the remainder at the end of the case is paid to unsecured creditors. These payments to unsecured creditors may only last a few months, after which time the debtor is granted a discharge and all remaining unsecured debt is wiped clean without additional repayment. Each Chapter 13 plan is different and you should consult with chapter 13 bankruptcy attorney at The Nesbitt Law Firm regarding the repayment structure and amounts to be repaid in your particular case. "Chapter 13 plans always fail, no one actually ever makes it to the end and receives a discharge." While a Chapter 13 plan is not immune to failure, discharge is possible, and the relief afforded can be significant and life-changing. While many things may happen over the course of 36 to 60 months, clients of The Nesbitt Law Firm can rest assured that their attorney will always be available and ready to adjust the Chapter 13 plan should the need arise. The most important consideration here for clients is to contact your attorney at The Nesbitt Law Firm as soon as you are aware of any change in circumstances that could affect your ability to make your Chapter 13 plan payment.