Chapter 13 Bankruptcy

Chapter 13 Bankruptcy is normally ideal for someone who has a job and assets but is overwhelmed with debt and the courts appoint a bankruptcy trustee where a debt repayment plan is structured where the petitioner has a new affordable payment.  The petitioner will pay all or part of his or her debt over the course of 3 to 5 years.  Chapter 13 Bankruptcy is different than a Chapter 7 Bankruptcy where with a Chapter 7 Bankruptcy, all of your debts get eliminated and all of your assets get liquidated to pay off creditors.  You can still keep your home with a Chapter 13 Bankruptcy even if you have plenty of equity in your home.  You can also keep your home with a Chapter 7 Bankruptcy but there may be issues if you have a lot of equity with Chapter 7.  With little or no equity, you can hold on to your home and make your regular mortgage payments with a Chapter 7 Bankruptcy.  Due to the fact that you will end up paying your debts over the course of time, Chapter 13 Bankruptcy is also known as reorganization bankruptcy or restructuring of debts.

Chapter 13 Bankruptcy: Basics Of Chapter 13

Chapter 13 Bankruptcy is not beneficial to everyone who is in debt.  First of all, you need consistent regular income for a Chapter 13 Bankruptcy to make sense since you will be making payments to your creditors with a percentage of your monthly income.   The reason you file Chapter 13 Bankruptcy is because you want to protect your assets so you probably want to protect your home and other personal assets.   For those with no income, Chapter 7 Bankruptcy is the route to go.

How Do You Qualify For Chapter 13 Bankruptcy?

To qualify for a Chapter 13 Bankruptcy, a person cannot have an overwhelming debt burden.  The secured debts allowed cannot surpass $1,149,525 and the petitioner’s unsecured debts cannot exceed more than $383,175.

How Does Chapter 13 Bankruptcy Work?

Anyone that wants to go through a bankruptcy filing needs to complete a credit counseling course from a credit counseling provider which is on the approved list from the United States Trustee’s Office.  Remember that a Chapter 13 Bankruptcy is a debt restructuring and repayment plan where it makes your monthly payment to your creditors affordable.  It will detail on how much each creditor gets each month for a certain period of time.

There are certain debts that the balance cannot be discounted and be paid in full and are classified as priority debts.  Examples of priority debts include wages that are owed to employees, government loans such as student loans, income taxes, child support, and alimony.  Secondary debts include your mortgage payments that are in arrears, car payments that are in arrears, and other debts that are in arrears.  After the secured debts are paid and if you have disposable income left over after making the required minimum payments to your creditors, the disposable income will go towards paying your debts that are unsecured such as medical bills and unsecured credit cards.  These creditors do not have to be repaid in full but an attempt needs to be showen that you are making a good effort in trying to repay them with your disposable income.

How Long Do I Have To Repay My Creditors?

The length of time for your repayment of your creditors depends much on the amount of money you earn and the amount of debts you owe to your creditors.  If your six month average gross income prior to filing for Chapter 13 bankruptcy is more than your state’s median income, then your repayment period might be a 5 year repayment plan.  If your six month average gross income prior to filing is lower than the state’s median income, then you will probably have a 3 year repayment plan.

Chapter 13 Dismissal Versus Discharge

In the event if you were to lose your job or cannot work due to medical reasons during your Chapter 13 payment plan period and cannot make your minimum monthly payments to your creditors, the trustee probably will restructure your payment plan again or the trustee can ask permission from the courts to see if they can discharge the debts you owe your creditors due to financial hardship.

In the event if the courts will not discharge your debts due to financial hardship, an alternative might be to convert your Chapter 13 to a Chapter 7 bankruptcy and request the courts to dismiss your Chapter 13.

Finalization Of Chapter 13 Bankruptcy

Upon completion of your repayment plan to your creditors, all balance remaining on your debts are normally discharged and you will no longer owe any creditors.  Prior to complete discharge of your Chapter 13, all non exempt debts such as income taxes, alimony, child support, and government loans are in good standings and current.  An approved budget counseling course that is approved with the United States Trustee is also required.

Qualifying For A Mortgage During Chapter 13 Bankruptcy

A home buyer can qualify for a residential mortgage loan after a one year waiting period after he or she enters into an official Chapter 13 repayment plan with the trustee’s permission.  The trustee need the bankruptcy courts approval and the new payment needs to be figured in.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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