Chapter 13 Bankruptcy
Wage Earners
Plan
Chapter 13 bankruptcy is
the reorganization of an
individual consumer's debt
with a new payment
schedule. If you have too
much disposable income to
qualify for chapter 7 or
have assets you want to
protect, you may want to
consider this code. Your
debts must be below a
certain level and you must
have steady income.
With this chapter the
debtor reaffirms to pay
all or a part of their
debt. The amount of
repayment can range from
10% to 100% depending on
the debtor’s income and
the composition of amount
owed. This code allows the
debtor to restructure
their payments and set up
a new payment schedule
(usually 3-5 years) that
is more manageable.
For an individual to
qualify under this code
unsecured debt may not
exceed $250,000 and
secured debts $750,000.
Payments are made to
secure creditors first to
the extent of their
secured interest and
priority. Non priority
creditors may be partially
paid- credit cards and
some taxes etc. In
general, creditor approval
is not required. Secured
creditors can object to
the repayment plan
however, the court can
force acceptance. (Cramdown)
This form of bankruptcy is
used when the petitioner
has property they want to
keep like a mortgage that
is about to be foreclosed
on and other non-exempt
assets that would be
liquidated under chapter
7. Filing under this code
will also halt all
collection and foreclosure
proceedings (including
IRS) and allow the debtor
to catch up on their
payments and reinstate
their original agreement.
Your payments will be made
to a Trustee who will
disburse them in a manner
called for in the
court-approved plan.
During this time the
Trustee will have control
over your (personal)
finances and any
credit-related matters
will have to be cleared
through him.
Who should consider
this chapter?
* If the assets you want
to protect would be
liquidated under a chapter
7 and your disposable
income is to high to
qualify for a chapter 7.
* If you need relief from
collection proceedings or
if you wish keep your
obligation to pay your
creditors and need some
breathing room.
* If you wish to leave the
option of filing a chapter
7 at some time in the
future. If you are a
farmer who does not
qualify for chapter 12 and
have debt unrelated to
farming.
* You filed chapter 7
sometime in the past 6
years. You have a
co-signer. If you could
pay your debts within 3-5
years.
Downside of Chapter 13
Alternatives
* If you are behind on
your mortgage and need to
catch up or if you owe the
IRS.
Chapter 13 ruins your
credit. It will remain on
your credit report for up
to 10 years. It will also
cost you more for any
credit you do get in the
form of higher interest
rates. The Trustee
appointed to oversee the
completion of your filing
may charge up to 8% of the
amount filed on. You will
have to pay attorneys,
court and filing fees up
front.
If your debts are
primarily unsecured debt,
(credit cards, medical
bills, unsecured loans
etc.) you may want to
consider debt
restructuring through a
credit counseling or debt
management agency who
specializes in
consolidation of unsecured
debt.
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