What is Chapter 13 Bankruptcy?

Chapter 13 is one of the more complex forms of bankruptcy but it may be right for you. Chapter 13 allows individuals to repay all or part of their debt. The terms of repayment is usually three to five years and is usually determined by income relative to a state median income.

Advantages of Chapter 13

You can save your home from foreclosure
You can reschedule secured debts for easier repayment
You can protect co-signers on your debt
You pay a trustee who distributes your payments to your creditors so you have no contact with creditors.

How it works

A petition is filed with a bankruptcy court
Also filed are a schedule of assets and liabilities, a schedule of current income and expenditures, a schedule of current contracts and current leases, and a statement of financial affairs
The debtor must also file a certificate of credit counseling, a copy of a debt repayment plan developed through that counseling, evidence of payment from employers received 60 days before filing, a statement of monthly net income and anticipated increases in income or expenses after filing, and a statement of interest in federal or state qualified education of tuition accounts
The debtor must provide the Chapter 13 case trustee with a copy of tax returns for the most recent tax year and any returns filed during the case.

Filing the petition automatically stays most collection actions.

The trustee will hold a meeting of creditors. The debtor must attend the meeting and answer all questions.

Once a court approves a repayment plan, the debtor must make payments to the trustee who distributes monies to the creditors per the plan.

The treatment of claims can be complex and divided among priority, secured and unsecured. You should consult an attorney to handles these various claims.

Major benefit of Chapter 13

A major benefit of Chapter 13 is that it can save your home from foreclosure. You can bring your past due payments up-to-date within a reasonable period of time.

You may be eligible for “lien stripping”. When the value of a property drops, the second lender often has nothing securing a second mortgage. The second lien is then treated as an unsecured loan, and in Chapter 13, it can be lien stripped. The second lender cannot collect on the loan after bankruptcy, and the property owner keeps his or her home.

You also may have part of your unsecured debt eliminated.

Some debt can be discharged under Chapter 13 that is not allowed under Chapter 7.

Chapter 13 discharge

Chapter 13 discharge is also complex and an attorney should be consulted. Discharge releases the debtor from all debts provided in the plan. If circumstances change that prevent the debtor from completing the plan, sometimes a “hardship discharge” may be granted.

To learn more about the benefits of Chapter 13, call a Glendale Bankruptcy Lawyer today at the Law Offices of Raffy Boulgourjian!