Chapter 13 Basics
Chapter 13 bankruptcies are best understood as a payment plan bankruptcies. The bankruptcy is going to be one that is for a period of 3 or 5 years where you make a monthly chapter 13 plan payment to the local Chapter 13 Trustee. The amount will be determined based on a variety of factors such as; your income, arrears on secured debt like a mortgage, that value of your total assets, and other considerations. Based on those factors and formula detailed by the Bankruptcy code will determine the payment amount. It is a complicated process and is rarely successful without the help of an experienced legal professional.
When considering a chapter 13 bankruptcy filing it is often for one of three different reasons. First, the client has an income that is to large to qualify for a chapter 7 bankruptcy but still needs debt relief. The income calculation is based on the mean income of the client’s household. If the income is to high then the bankruptcy code requires a chapter 13 filing.
The second reason someone files is that they have to many assets that are not protect by the bankruptcy exemptions. Exemptions are the statutory limits that protect your assets up to a certain dollar amount. If after factoring those exemptions you have a value in your property it is often prudent to enter into a chapter 13 payment plan. The alternative in a chapter 7 is to surrender those assets to be sold and the money dispersed. The chapter 13 allows you to pay the value, maintain the property, and get bankruptcy relief otherwise.
Finally, the most common reason someone files for Chapter 13 bankruptcy is to get back on track with their mortgage or car payment. This is a method of curing late payments on secured debt. The bankruptcy allows you to start making you normal mortgage or car payment again, while paying back the missed payments through the bankruptcy. The Chapter 13 Bankruptcy is much more complicated and last longer than a Chapter 7.