What is Chapter 13?
Chapter 13 refers to the Chapter in the Bankruptcy Code which permits individuals with regular income to pay all or some of their debts through a convenient repayment plan over several years. Chapter 13 Bankruptcy is typically known as a “debt consolidation” Bankruptcy or a “wage earner plan” but I really prefer to think of it as a consumer reorganization.
What is the Purpose of Filing Chapter 13?
The purpose of Chapter 13 is to allow you to keep all of your assets and pay off the debts that you need to pay off in order to keep your home, car or other valuable assets. If you are behind on your home or car, no problem, with chapter 13 you can catch up over five years. If you are in foreclosure but the trustee sale hasn’t happened yet, then you can save your home by filing before the sale date.
Chapter 13 is designed for consumer debtors who do not have the ability to reinstate their mortgages in one lump sum but are able to catch up if given enough to do so. In many cases, second mortgages or home equity lines of credit can be totally wiped out as both a debt you owe and as a lien against your property, leaving you with only one mortgage payment to make on your home thereby reducing your housing costs substantially.
If you car has either been very recently repossessed or is about to be repossessed, that can be fixed in a chapter 13 too. If the IRS or Franchise Tax Board is making your life miserable, no problem as chapter 13 lets you pay that off over time without them garnishing your paycheck or wiping out your bank account with no notice.
What is the Dreaded “Means Test”?
Chapter 13 is also the place that some debtors go that have incomes above median income and fail what is called the dreaded “Means Test”. When the banks slammed through the bankruptcy reform act in 2005, debtors got screwed pure and simple. If you dare make too much money then you cannot file Chapter 7 but instead have to pay off some of your unsecured debts over a five year repayment plan based upon this draconian formula that only greedy creditors and banks could come up with. How much you pay back depends on how adept you and your attorney are at presenting your means test to the Trustee. I have been doing the means test for quite a while and am quite competent at how best to present it to the Trustee.
What is the Process For Filing Chapter 13?
The process for filing the case is similar to a chapter 7 except you do not get your discharge until you complete your plan in 36 or 60 months depending upon how your case is structured.
So do not delay in regaining your financial independence. If you think it is time to file chapter 13, then give me a call today for your free consultation and get your life back.