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Chapter 13 is a repayment plan bankruptcy for individuals and married couples. Businesses may not file for Chapter 13, but if you are a sole proprietor or an owner of a business, you are still eligible to file Chapter 13 and operate your business. A Chapter 13 – like all other Chapters of Bankruptcy – can be used to stop foreclosure, stop garnishments, and stop lawsuits. It can also be used to recover a vehicle that has been recently repossessed. If your car has been repossessed and it has not been sold at auction, Chapter 13 requires that your lender return the vehicle to you with all of your belongings. In these situations, we often file your case as an “Emergency Chapter 13” where we only need some of the documents to get a case number. Once you file, you are protected by the Automatic Stay – which puts a stop to foreclosures, garnishments, lawsuits, and other actions against you and your property.
The Chapter 13 Plan is a powerful tool to combat debt. It can allow you to get caught up on a mortgage, to pay off a vehicle at a reduced rate, to pay back taxes over a longer period of time than usually allowed, to pay off a mobile home or a short-term mortgage at a reduced rate, or to discharge debt when you do not qualify for a Chapter 7. In a Chapter 13, your debts are grouped into different categories and you propose a plan to repay some or all of that debt over a period of three to five years. Those categories are discussed in further detail below. For more information, contact us for a free consultation with one of our Chapter 13 lawyers.
Priority debt must be paid in full over the plan. This includes past-due child support/alimony and taxes incurred in the past three years. If the taxes were due more than three years before the case was filed, then the taxes are not priority and they may be dischargeable. If the taxing authority has filed a lien, then the taxes may be treated as secured debt. Since tax issues in bankruptcy are complex, you should discuss this with one of our Chapter 13 attorneys.
Secured Debt: Mortgages, Cars, etc
Secured debt includes debt secured by collateral like a home mortgage and a car loan. How your secured debt gets treated depends on a number of factors related to the debt and the collateral. Some secured debts may be paid directly outside the bankruptcy if you are current on your payments and the debt is a long-term debt. If you do not want to keep the collateral and walk away from the loan, you also have the option of surrendering the collateral and discharging the debt. If the loan is eligible, you may be able to “cramdown” the loan – paying the amount the collateral is worth instead of the amount that is owed. This is extremely useful when it comes to loans with older vehicles or title loans. This “cramdown” is very useful when it comes to mobile homes as well. We have helped people pay off 15-year mortgages in five years, paying less than their regular note. To determine if your loan is eligible, please schedule a free consultation with one of our attorneys.
Unsecured Debt: Medical Bills, Credit Cards, Personal Loans, etc
The last category of debt is unsecured debt (credit cards, personal loans, medical bills, etc.). In a Chapter 13, unsecured creditors are compensated based upon the Liquidation Test and the Calculation of Disposable Monthly Income. The Liquidation Test looks at whether any assets you own would be liquidated in a Chapter 7 case. You must ensure that your creditors in a Chapter 13 receive the same amount as they would if you filed a Chapter 7 where the nonexempt property would be sold. The Calculation of Disposable Monthly Income is similar to the means test. If the test determines that you have disposable monthly income, then you are required to pay that disposable income to your creditors over the course of your bankruptcy plan.
The Chapter 13 Plan
The Chapter 13 Plan is a useful tool and it can be used in creative ways to reorganize your debt and come out ahead. The Plan is proposed by you – the Debtor and subject to approval by the Court. Our lawyers draft the plan for you, taking into account the best options for reducing how much you owe while keeping the property that you want to keep. The Plan is not set in stone, however. If your circumstances change, you can modify, convert, or dismiss your bankruptcy depending on what is right for you.