Chapter 13 bankruptcy, commonly referred to as a wage earner's plan, is designed for individuals who don’t qualify for Chapter 7 due to higher income levels. It allows for the reorganization of debt, with a repayment plan that spans several years. During this period, debtors can make manageable payments to their creditors, and any remaining unsecured debt may be forgiven at the end of the plan. One of the key advantages of Chapter 13 is that it enables you to keep crucial assets, such as your home and car, while making payments.
In addition to helping protect assets, Chapter 13 also offers an opportunity to strip away secondary mortgages if the value of your home has fallen below what you owe on the first mortgage. This option is ideal for those looking to catch up on overdue payments or address tax and non-dischargeable debts, such as child or spousal support. Through a structured repayment process, Chapter 13 provides a practical path to regain financial stability without losing essential property.
There are two primary benefits of choosing Chapter 13 bankruptcy. First, if you have a second or third mortgage on your home, those liens may be stripped away. This means that the lienholder no longer has an interest in the property, and you are no longer required to pay those creditors after the bankruptcy is over. You may be entitled to strip liens from your home as long as the value of your home is less than what you owe on your first mortgage.
Another benefit is that you get an opportunity to cure defaults on mortgages or car payments, and you can take care of past due non-dischargeable taxes on a five-year schedule as opposed to what the IRS demands. Child and spousal support arrearages can be paid over that same period, though current payments must also be made, and non-support obligations to spouses can be paid under the plan and discharged at the end.
When filing for Chapter 13 bankruptcy, it's essential to understand that not all debts will be wiped out. Obligations such as student loans, back taxes, and child support will still need to be repaid under the terms of the plan. Additionally, during the repayment period, you may need court approval to obtain new credit until your bankruptcy is discharged. It’s also important to consistently follow your repayment plan, as failure to do so could result in losing protections, including the ability to keep your assets. Consulting with an experienced attorney is crucial to navigating these challenges successfully.
For more information or guidance, contact The Law Office of Richard T. Baum for assistance.
Chapter 13 allows individuals to set up a repayment plan over 3 to 5 years, ensuring that mortgage arrears, car loans, and even some non-dischargeable debts, like taxes, can be managed. Unlike Chapter 7, this option lets you keep your assets while addressing outstanding debt. Chapter 13 also offers the ability to strip away secondary mortgages if the home’s value has decreased below the amount owed on the first mortgage.
Chapter 13 bankruptcy is an effective solution for those seeking to manage debt while protecting their assets. Here are common questions to help you better understand the benefits and process of Chapter 13 bankruptcy.
Individuals with a stable income who don’t qualify for Chapter 7 due to higher income limits.
Yes, Chapter 13 allows you to catch up on past-due mortgage payments over time.
Some debts, like student loans and recent taxes, must still be repaid but can be included in the repayment plan.
Yes, Chapter 13 helps protect essential assets like your home and car while reorganizing debt.
Repayment plans typically last between 3 and 5 years, depending on your financial situation.