A Chapter 13 bankruptcy allows Debtors to repay their debts over time.
Chapter 13 is a repayment plan for individuals, including self-employed individuals or sole
proprietors, who have regular income. Chapter 13 allows individuals to repay debts, or a
portion of their debts, over a period of 3 to 5 years.
If a debtor earns over the median income, it is mandatory that the term of the Chapter 13 Plan is 5 years.
Upon filing, the automatic stay goes into effect that stops all collection activity. This stay immediately stops:
- Repossessions
- Mortgage foreclosures
- Garnishments
- Wage assignments
- Lawsuits
- Evictions
- IRS actions
- Harassing phone calls
- Collection notices
- Wage Garnishments
Chapter 13 cases are filed for very specific reasons. For example:
- Stop a foreclosure. If the homeowner is able to pay the current mortgage payment, a Chapter 13 plan can provide for the repayment of the default and reinstatement of the mortgage.
- Regain possession of a repossessed car. In a Chapter 13 case, a repossessed car can be returned and the repayment of the balance due can be extended over the term of the Chapter 13 plan.
- Repay nondischargeable debts such as alimony, child support, student loans or taxes.
- To lower payments to secured creditors and to extend the period of repayment when creditors won't agree to the reduction or extension.
- Keep an asset. Where an individual's assets have value in excess of outstanding liens that could be liquidated in a Chapter 7 case to repay creditors, a Chapter 13 plan can be used to repay the nonexempt equity to creditors over the plan term.
- Chapter 7 is not an option. If an individual is ineligible for a Chapter 7 because he/she earns above the median income or has received a discharge in the previous eight years, a Chapter 13 can be used to repay creditors.
In a Chapter 13, secured creditors - those holding liens or security interests in homes, cars, furniture or other collateral - are repaid in full. Unsecured creditors - those without liens or security interests - may be paid either in full or in part depending upon an individual's assets, income and expenses and ability to repay creditors.
