Chapter 13 Bankruptcy
Chapter 13 bankruptcy is a reorganization for individuals with regular income. A chapter 13 can help people save their homes, cars and other assets. Debtors will have a three to five year a payment plan for past due federal and state taxes, home mortgage arrearages and overdue vehicle payments.
Depending on the type of debt and the debtor’s income, creditors may received any where from a few cents on the dollar to full payment. This type of case is more difficult than a chapter 7.
A chapter 13 may provide debtors with more benefits than a chapter 7 such as:
- Stripping (or eliminating) a second mortgage, or other liens, from a property;
- Stop foreclosure allowing you to catch up on your mortgage by paying the past due amount over a 3-5 year payment plan;
- Restructuring a car loan to pay much less than the outstanding balance on the auto loan;
- Restructuring all of your debt at once where you may only have to pay a small percentage to your creditors;
- Chapter 13s include all of debt, including unsecured debt, mortgage arrears, tax debt, property tax debt, and past due utilities
If you have a second mortgage or another lien on your property Chapter 13 may provide a huge benefit to you and allow you to strip the lien off of your property and have it treated along with all of your other unsecured debt.
This can usually be done if the current fair market value of the property is less than what is owed on the first mortgage. A Motion to Avoid the Lien is filed with the Court with evidence of the fair market value (usually an appraisal). The creditor may object to their lien being avoided. This usually means they would submit evidence that the fair market value of the property is higher than the value you are setting forth. If this happens the Judge will likely set an evidentiary hearing to her testimony from both appraisers and make a determination as to value. Ideally, your creditor will not object and the Judge will grant the motion to avoid the lien. If your lien is avoided then it becomes unsecured debt to be treated equally along with your unsecured creditors. This means the lien creditor will receive funds according to how your Chapter 13 plan is to pay other unsecured creditors.
As with Chapter 7, or any type of bankruptcy, filing a Chapter 13 gives you protection of the automatic stay and stops a foreclosure sale in its tracks. Even if the foreclosure sale is already scheduled, as long as your case is filed before the schedule foreclosure sale date the foreclosure stopped.
A very small percentage of debtors are successful in chapter 13 without an attorney. An experienced attorney is essential to navigate all the requirements of a chapter 13.