What is Chapter 13?
Chapter 13 is often referred to as a “reorganization” bankruptcy. In Chapter 13, the Debtor makes a monthly payment towards a Chapter 13 Plan. In most cases, the Debtor does not have to pay all debts owed. A Chapter 13 case can be filed by a single person or jointly by two legally married persons.
Debts in Chapter 13 bankruptcy cases are arranged in the order of their legal priority. Debts such as personal and business income taxes, home loan, car loan, etc are in most cases paid ahead of all other debts.
Chapter 13 bankruptcy may be an option when there is a large past-due balance on a mortgage loan. Chapter 13 bankruptcy permits a Debtor to pay the past-due mortgage balance over time, up to 60 months, in a court-supervised Plan. When a Chapter 13 bankruptcy case is filed, the Court issues what is called an Automatic Stay Order. The automatic stay order prohibits all further creditor collection actions. This means that Chapter 13 stops foreclosure. It also stops wage and bank garnishments, collection calls, lawsuits, repossessions, IRS tax levies, and all other types of creditor collection actions. The Automatic Stay also stops the creditor's attorney or collection firm.
Chapter 13 bankruptcy may be the best option when a debtor's household income and expenses do not permit the filing of a Chapter 7 bankruptcy case. In every Chapter 7 and Chapter 13 bankruptcy case, the Debtor is required to complete a document often called a “Means Test.” ( Official Form 22A in Chapter 7, and Official Form 22C in Chapter 13). In Chapter 13, the “Means Test” form operates to determine the amount of general unsecured debt which must be paid inside the Chapter 13 plan, and whether the Plan must run at least 36 or 60 months.
Chapter 13 bankruptcy may be the best option when a debtor's personal residence is worth less than what is owed on the property. By the process of lien avoidance, it is often possible to avoid, or “remove” a 2nd mortgage, home equity line of credit, or judgment lien from the property. In cases where the debtor owns a second property, such as a rental property, Chapter 13 bankruptcy permits the Court to value the collateral and reduce the value of the mortgage lien on the property. This includes a first mortgage ( there are limitations which apply to the debtor's personal residence).
Chapter 13 bankruptcy may be the best option when the debtor owes more on a car loan than what the car is worth. Through what is known as a “cram down,” the Bankruptcy Court can order the reduction of the vehicle loan to an amount equal to the determined fair market value of the vehicle. The balance of the loan over and above the fair market value becomes general unsecured debt, and is discharged once the Chapter 13 Plan is paid off.
There are of course limitations from case to case in the context of Chapter 13 bankruptcy which you must discuss with your attorney. The above-mentioned examples are not an exhaustive list of all of the benefits of Chapter 13 bankruptcy.
At Ryan Legal Services, Inc, we have been representing individuals in Chapter 7 and Chapter 13 bankruptcy matters since 1998. We represent individuals in Baldwin, Mobile and Washington Counties.
Kevin Ryan is an experienced bankruptcy lawyer who will be there for you. Call us to set up a free telephone or office consultation. Attorney Kevin Ryan is admitted to practice before the United States Bankruptcy Court for the Southern District of Alabama. http://www.alsb.uscourts.gov