When Chapter 13 Bankruptcy Is Used
Chapter 13 is a reorganization under the United States Bankruptcy Code. Chapter 13 allows you to repay debt over a three to five-year period. It’s most commonly used to save a home that’s been in foreclosure or to save a vehicle that’s been repossessed or to stop collection activity on non-dischargeable debt such as parking tickets, child support, tollway violations, IRS debt and more.
Debtor Has Income To Fund Plan
Chapter 13 bankruptcy works the best when someone has the income to pay where they didn’t have the income before. For example, if someone was off of work due to an illness, and injury and all of a sudden got back to work and now has the ability to make money again, that person is most likely going to have success with Chapter 13. And this makes sense because the reason that they fell behind is that they didn’t have the income, they were off either due to an illness or an injury or job loss. But now that they are back working, they have the ability to not only make that regular mortgage payment again but they can put a little bit away towards the part that they fell behind and pay that over the next 3 to 5 years. So Chapter 13 works best when someone who had income and lost it gets that income back.
Income Has Not Changed
Where Chapter 13 sometimes struggles is when someone who has not had a significant change in income tries to work a payment plan where they really don’t have the budget or the discipline to make that happen. One example would be if someone has been working at the same job for 15 years, they have fallen behind on their mortgage, maybe their mortgage adjusted up, and the homeowner says I want to do a Chapter 13 and save my home. Well, the only way you’re going to be able to save your home under Chapter 13 under those circumstances is to either obtain more income or change your budget. So if I have a client who wants to save a home that way and they do not discipline themselves enough to cut some expenses, they are simply not going to be able to make the current mortgage and put something away towards the arrearage.
Start Off Strong
The beginning of a Chapter 13 is very telling. Since we are talking about a three to five-year payment plan, the first one to four months are the most critical. Usually if someone is going to be successful, they are going to be successful right off the bat by making all of their payments. If a person is not going to be successful, we are typically going to know about it when in the first one to four months when payments do not get made either to the trustee or to the mortgage company. In those cases, the person just simply did not have the ability to make the payments, although they gave it a try.
So Chapter 13 works best if you are someone who had significant income, might have lost it for a time and now you have it back. Chapter 13 sometimes works for someone who could change their budget and make ends meet. For more information about Chapter 13 and how you can benefit by this Chapter, contact in bankruptcy attorney in your local area.
