Chapter 13 is often called a wage-earner plan. It is a repayment type of bankruptcy where you pay back a portion, or sometimes all, of your debts over a time period of 3 to 5 years.
Chapter 13 allows you to make one consolidated payment to the Court, which then pays almost all of your creditors. Usually, you may still pay your future mortgage payments directly, but car payments, furniture payments, tax payments and other debts can all be consolidated into the one Chapter 13 payment.
IMPORTANT: Most Chapter 13 debtors only pay back pennies on the dollar to their unsecured creditors, which makes a Chapter 13 MUCH more affordable than most debt settlement or debt consolidation plans.
The benefits of a Chapter 13 allow a debtor to:
• Catch up past-due mortgage payments and stop foreclosures
• Catch up or restructure automobile or furniture payments and avoid repossession
• Restructure debts owed in divorce settlements (other than child or spousal support)
• Stop tax levies
• Stop garnishments
• Control student loan payments when there are no other alternatives
• Freeze your debts: No more interest, no late fees, no lawyer fees
• Tell your creditors how much YOU can afford to pay, rather than having them tell you what you must pay.
As your attorneys, we determine how much you are required to pay back and how much you are able to pay back taking into account the following facts:
• ASSETS: The value of your assets (things you own) is one factor in determining how much you may have to pay back in a Chapter 13 bankruptcy. Many folks who would lose a home in a Chapter 7 because of their equity are able to file a Chapter 13 and pay back a reduced amount of debt, but get to keep their home.
• ABILITY: Your ability to pay also determines how much you have to pay back. Simply put, the more you make, the more you may have to pay back.
• TYPES OF DEBTS: Different types of debts require different treatment in a Chapter 13. For example taxes owed to the IRS and incurred in the last three years must be paid back 100%. But Chapter 13 can stop all future penalties and all future interest on those taxes.
A Chapter 7 bankruptcy stays on your credit record for only 7 years from the date you file. However, many of our clients find their credit scores start rising within the first 12 months of their repayment plan as their debts are now being timely paid and balances are decreasing.
Some debts are not dischargeable in a Chapter 13. In particular student loans cannot be wiped out in a Chapter 13 and you cannot discharge spousal or child support.
The law also prohibits discharge of certain other debts based on fraud and other factors.