Chapter 13 Bankruptcy
Chapter 13 Bankruptcy is less common, and less desirable. But it does have some unique advantages: mainly for someone that wants to save their house, or someone that has too many assets and does not want to lose them.
Chapter 7 vs Chapter 13
A Chapter 7 is short term, squashes all of your eligible debt, and in return you give up all your assets that exceed a certain value. Chapter 7 filers are only eligible if they earn below a certain annual amount of income (for example, approx $42,000 for a one-person household)
A Chapter 13 is long term, squashes a percentage of your debt, and you get to keep all of your assets. Within reason, you are eligible regardless of your income level. It is the only form of bankruptcy that can help you save your house (see below).
Sort of Like a Debt Consolidation Plan
Have you ever seen those signs at the side of the road that promise debt consolidation or debt relief? Chapter 13 Bankruptcy is a more legitimate, court supervised version of those payment plans. The most common Chapter 13 case allows you to roll up all of your debts together and make one payment each month. Typically, depending on your income, you end up paying between 5 and 30 cents on the dollar each month, for sixty months. At the end of the sixty months, if you make all your payments on time, the remainder of your debt is discharged.
Items You Must Give Up
In a Chapter 13 you really don’t have to give up a thing. You can keep all of your assets. Some exceptions are luxury items that you make monthly payment on. We recommend you give up those items. By doing so you both put yourself on better financial footing, and you maximize the chances the bankruptcy trustee (your opposition) will object to the proposed 60-month payments.
Debt You Will Reduce
The good part, by filing for bankruptcy you can reduce large sums of debt, such as:
- Credit card bills
- Bills related to foreclosures
- Amounts owed for unpaid rent
- Certain back taxes (with some exceptions)
- Certain court judgments against you
Other Problems You Can Eliminate
One of the great things about Chapter 13 Bankruptcy is that you can fix certain problems, such as:
- Give back cars you don’t want and cannot afford
- End residential leases that you don’t want.
- Give back furniture you cannot afford
- Give back houses you cannot afford
Saving Your Home
A unique feature of chapter 13 is that you can save your home. Here is the way this works: Let’s say you are 8 months behind on your mortgage. You are able to pay the ongoing payments, but are hopelessly behind on the arrears, fees, and penalties.
For things you give back, the bankruptcy filing will protect you from claims made on amounts due.