Bankruptcy may carry a stigma to some people but in most cases it is a
way for individuals to regain their financial footing without losing all
Chapter 13 bankruptcy allows individuals with steady income to create a
repayment and reorganization plan for all or part of their debts. A Chapter
13 Plan is either three or five years, and as long as you don’t
exceed the Chapter 13 debt limits, during this time you can make installment
payments to your creditors to resolve your debts. If your monthly income
is under the applicable state median, your plan will be for three years,
however you may have the option to extend it to five years. If your monthly
income is above the applicable state median, then your plan must be five
years long. For however long your plan is in place, creditors are forbidden
by law from beginning or continuing collection activities against you
as long as you comply with your plan.
One of the major benefits of Chapter 13 is that individuals who file for
Chapter 13 have the chance to save their homes from being foreclosed upon
because they can reinstate their mortgage. After filing, foreclosure proceedings
can stop and late mortgage payments may disappear over time as you repay
them through your plan. While you repay your arrears, you must resume
making normal monthly mortgage payments every month in order for your
Chapter 13 Plan to be successful and for you to keep your home.
Although less common, you can also use the Chapter 13 process to get back
on track with mortgages on property that may not be your home, such as
an investment or rental property. The same rules apply- you pay back your
arrears over 60 months while resuming normal monthly mortgage payments.
Another advantage is that a Chapter 13 lets individuals restructure other
secured debts, such as car loans or loans on personal property, and extend
them over the course of the Chapter 13 repayment plan. By doing so, you
may be able to lower your payments. Examples of restructuring that can
occur is that your interest rate could be lowered and if certain rules
are met you may also be able to pay the value of the property over your
Chapter 13 plan as opposed to the loan balance, which may be significantly higher.
Third parties and co-signers who are also liable for the loans can also
be protected with a Chapter 13 as well because Chapter 13 contains a stay
of collection against a co-borrower as long as the debt is a consumer
debt. You can also treat co-signed debts more favorably than other debts
in your Chapter 13 case and protect friends or loved ones.
Fourth, Chapter 13 is a great way to deal with tax debts, which again can
be restructured and paid out over the life of the plan. In addition, very
often, penalties can be completely discharged without payment in Chapter
13- this also includes penalties for non dischargeable taxes as long as
certain rules are met.
Lastly, Chapter 13 consolidates your debts into one repayment plan overseen
by a Chapter 13 trustee. The trustee then distributes the payments to
creditors, meaning there is no direct contact between debtors and creditors.
There are many more benefits to Chapter 13 and Chapter 13 can be tailored
to your specific situation.
If you have further questions on Chapter 13 or bankruptcy in general,
reach out to Natasha Meruelo, Esq. and set up a