Chapter 13 Bankruptcy

What is Chapter 13 bankruptcy?

Richard A. Sadoff, Attorney at Law offers individualized attention and clear communications to all clients from the Northern Kentucky area in handling Chapter 13 bankruptcy matters. Chapter 13 bankruptcy differs from Chapter 7 because it is not a liquidation. Rather, Chapter 13, or a wage earner’s plan, offers certain benefits such as property protection and debt discharge in exchange for a promise to pay back all or a portion of your debts through a payment plan.

Why should I file for a Chapter 13 bankruptcy?

To begin, Chapter 13 does not necessarily require full repayment of all debts — only past-due secured debts and priority debts must be paid in full. The amount you repay is based on your financial situation, including your income and the amount and type of debts you owe.

Chapter 13 has many benefits that are not available under Chapter 7:

  • You can keep your home — If you have defaulted on your mortgage, Chapter 13 can allow you to catch up on your past-due payments.
  • You can keep additional property — If you have property with significant equity or other property that is not exempt from liquidation, Chapter 13 can allow you to keep that property where it would be liquidated in a Chapter 7 proceeding.
  • Discharge – Chapter 13 can discharge certain debts that are non-dischargeable in Chapter 7. These debts include marital property settlements not in the nature of alimony or support, and willful and malicious damage caused to the property of others.
  • Reduce amount owed on secured loans — Chapter 13 makes “strip-down” available. Strip-down allows you to reduce a secured loan to the amount of the principal, and pay that amount through your Chapter 13 Plan. For example, you took out a loan to purchase a car for $20,000. After driving the car off the lot, it depreciates significantly and is worth only $10,000 one year later, even though you still owe $15,000 on the loan. Strip-down allows you to reduce the loan amount to the $10,000 value of the property.
  • Eligibility — If you filed a Chapter 7 within the past 8 years and received your Discharge, or cannot pass the means test, then you are not eligible for Chapter 7. However, you may qualify for a Chapter 13 plan to reduce your debt burden.
  • Avoid 2nd and 3rd mortgages — If your residence is worth less than what is owed on your 1st mortgage, any 2nd or 3rd mortgage can be avoided, meaning that the monthly mortgage payment no longer has to be made, and the unpaid mortgage balance is treated as just another unsecured debt.

What is the process for filing a Chapter 13 bankruptcy?

A Chapter 13 proceeding begins by meeting with an experienced bankruptcy attorney. If you decide that a Chapter 13 plan is in your best interest, your attorney files a petition with the bankruptcy court that includes:

  • A repayment plan of three or five years, depending on means test results
  • A schedule of income and expenditures
  • A schedule of contracts and leases
  • All recent tax transcripts
  • A statement of financial affairs
  • Proof of undergoing credit counseling

Following the filing of the petition, an “automatic stay” is triggered. The stay prohibits creditors from continuing most collection efforts, including foreclosure, against you and any cosigners to your debt. Even if you have not received plan approval yet, your first payment under your plan is due 30 days following the filing. A meeting is scheduled with your Chapter 13 Trustee, referred to as a “first meeting of creditors” or a “Chapter 13 Section 341 meeting” and a confirmation hearing follows approximately 45 days later. After all payments are made pursuant to the three- or five-year plan, a discharge is granted, your mortgage arrearages are completely caught up and all remaining unsecured debts are forgiven.

Chapter 13 in perspective

Chapter 13 is not for everyone. Because you must follow a payment plan, Chapter 13 requires you to follow a fixed budget for a significant period of time. Chapter 13 plans can also go awry if you face significant unexpected expenses, such as car repairs, or income disruptions due to illness or loss of overtime, etc. It takes a lot of determination and a little good luck to successfully obtain a Chapter 13 discharge, but frequently it is worth the effort because the pay-off (usually saving the family residence from foreclosure) can be so great.

Contact us today to see if Chapter 13 can help you

Chapter 13 can provide you with a means to financial health while protecting your property and your home. At the law practice of Richard A. Sadoff, our attorneys have shown countless Kentucky residents from Northern Kentucky how Chapter 13 may be the best means to save their home from foreclosure and reduce their debt burden. Put our experience to work for you by calling us at (859) 261-6200 or contacting us online for your free consultation.