What is a Chapter 13 bankruptcy?
A Chapter 13 bankruptcy is a reorganization of your debt or a repayment plan through the federal government of anywhere from 3 to 5 years. Chapter 13 bankruptcy is a very complicated process; much more complicated than Chapter 7 so an attorney is definitely something you should acquire before filing Chapter 13.
Chapter 13’s can be looked at as credit consolidation through the federal government where you put all your debt into one pot; you make one monthly payment to a trustee and the trustee repays your creditors based on the priority set up in the Bankruptcy Code.
Good reasons to file Chapter 13 are if you have fallen behind on your home and need to pay what you owe on back mortgage payments plus your mortgage payment going forward. If you fall behind on a car, Chapter 13 can help you keep it. Also, if you have non-dischargeable debt which cannot be eliminated in Chapter 7 bankruptcy such as parking tickets, tax debt, child-support debt or any payments to the government.
Chapter 13 bankruptcy can be a powerful tool, but it’s very complicated. Thus, I always recommend having an attorney for a Chapter 13 bankruptcy.
How long does a Chapter 13 bankruptcy case take?
A Chapter 13 bankruptcy case will last anywhere from 36 to 60 months or 3 to 5 years. This depends on a number of factors. Obviously your attorney’s goal should be to have you pay the least amount possible for the shortest amount of time possible. But we also want to set you up for success. So if you are in a five-year or 60 month plan, you will be paying a lot less per month than if you are in a 36 month plan or a three-year plan. It’s always better to give yourself a cushion so you know you are able to make your payment rather than trying to put a lot of pressure on yourself in getting out of bankruptcy in 3 years.
In Chapter 13 bankruptcy, you pay your unsecured creditors like your credit cards, your medical debt, your payday loans or the like a percentage of what you owe. If you are paying anything less than 100% of your debt back through your Chapter 13 bankruptcy, you cannot pay off your debt before the plan term. So if you are paying a lower percentage which could be as low as 10%, you should plan on being in your Chapter 13 for 3 to 5 years.
Will I have to give up all my property if I file Chapter 13 bankruptcy?
The answer is no. One of the main benefits of filing Chapter 13 is that all your property will be protected. But any equity that you have in property will increase the amount that you will have to pay back each month to the trustee. For instance, if you have a house that has significant equity, that equity will be protected under Chapter 13, but it will increase the amount that you will have to pay to the trustee every month.
The simplest way to explain this is to say that you have to pay to the trustee at least, or to your creditors more correctly, but at least what they would have received in Chapter 7 bankruptcy. This means that if you were to have a house with $100,000 worth of equity and you were to have filed Chapter 7, the trustee would take the house, sell it and pay back your creditors. But in Chapter 13, that $100,000 of equity would just affect the amount that you would have to pay back for your other creditors like your credit cards and the like. All property is protected in Chapter 13 bankruptcy.
