Reorganize Your Finances Through A Chapter 13 Bankruptcy
In contrast to a Chapter 7 bankruptcy, in which you may eliminate most or all of your debts, a Chapter 13 bankruptcy requires that you pay some or all of your debts over a period of up to five years. Accordingly, Chapter 13 bankruptcy is typically looked to for relief only when Chapter 7 is not an option.
More information on Chapter 13 bankruptcy is below. If you would like to speak to an experienced bankruptcy lawyer regarding your legal options and whether Chapter 13 is something you should consider, you can call us at 718-625-0800. We answer questions honestly and promptly, and we always provide you with guidance that fits your best financial interests.
Is Chapter 13 Bankruptcy Right For You?
The following are reasons to file a Chapter 13 bankruptcy:
- You have too much income to file under Chapter 7.
- You have fallen behind in mortgage payments and want to keep your home.
- Your home is in foreclosure, and you want to keep it.
- You have a second mortgage on your residence that you want to eliminate while continuing to pay your first mortgage.
- You have property that you could not keep in a Chapter 7 bankruptcy, and you want to keep it.
- You received a Chapter 7 discharge within the past eight years.
- You have debts that are not dischargeable in a Chapter 7 bankruptcy, such as student loans and taxes, which you want to pay in a Chapter 13 payment plan.
Benefits Of A Chapter 13 Bankruptcy
When you file a Chapter 13 bankruptcy, an automatic stay is issued by the Bankruptcy Court, which will stop all collection and legal actions against you. If your house is in foreclosure, the stay will stop the foreclosure action and allow you the opportunity to pay the amount you owe according to a payment plan. The Chapter 13 bankruptcy must be filed prior to the sale of the home at foreclosure. If this is your second recent Chapter 13 bankruptcy, you will receive an automatic stay for only 30 days. To extend the automatic stay requires obtaining permission from the bankruptcy judge assigned to your case. If this is your third recent Chapter 13 bankruptcy filing, no automatic stay can be granted.
If you do not qualify for Chapter 7 bankruptcy, Chapter 13 is a good way to repay your unsecured debts such as credit cards, since you get to repay them – interest free – over a period of three to five years. In addition, depending upon your circumstances, you may not have to repay the entire amount that you owe. In fact, you may have to pay only as little as 10 percent of those debts. Unlike Chapter 7 bankruptcy, in a Chapter 13 bankruptcy, there are no limits on what assets or property you are allowed to keep.
The Chapter 13 Bankruptcy Payment Plan Explained
In a Chapter 13 bankruptcy, a payment plan is established to permit you to make payments over a period of time, which can be from three to five years depending upon your circumstances. To qualify for a Chapter 13 bankruptcy, you must have enough income to pay your living expenses and payments required under the plan. In addition, the amount of debts that can be processed in a Chapter 13 bankruptcy is limited. As of April 1, 2016, the total amount of unsecured debts, such as credit card debts and personal loans, may not exceed $394,725, and the total amount of secured debts, such as mortgages and auto loans, may not exceed $1,184,200. These amounts are periodically increased. If your debts exceed these amounts, you are not eligible for Chapter 13 bankruptcy and must consider Chapter 11 bankruptcy.
An Example Of A Chapter 13 Repayment Plan:
In a Chapter 13 bankruptcy, your creditors must fair no worse than they would have if you had filed a Chapter 7 bankruptcy. For example, in a Chapter 7 bankruptcy, you are allowed to keep your home only if you have no more than $170,825 in equity if you live in New York City. If live in New York City, filed a Chapter 7 bankruptcy and owned a home with $270,825 in equity, the trustee would sell the house and have up to $100,000 to pay your unsecured creditors. As a result, if you instead file a Chapter 13 bankruptcy under the same circumstances, you must pay $100,000 to your unsecured creditors in a payment plan. Consequently, if the total amount of your unsecured debts is $100,000 or less in this example, your creditors will be paid in full. However, if you owe $200,000 in unsecured debts, your creditors will be paid only half of the money you owe them. Once the final payment is made under the plan, the remaining debt will be discharged, which means that you will not have to pay it.
This example has been simplified to provide an idea of how Chapter 13 bankruptcy works. Other factors must be considered. If, for example, your house was to be sold by the trustee, there would be expenses associated with the sale. Accordingly, if you are only slightly over your allowed exemption, you may still be able to file a Chapter 7 bankruptcy.
You can read more about what you can expect regarding the cost and process of a Chapter 13 bankruptcy filing here.
If You Have Questions, We Have Answers
Experienced bankruptcy attorneys at the law firm of Jeffrey B. Peltz, P.C. have helped thousands of clients through Chapter 7 and Chapter 13 bankruptcy. It is common to have numerous questions at the beginning of the process, which is why we provide free initial consultations at our Brooklyn, New York, office. We are conveniently reached through public transportation and are available on evenings and Saturdays. We also speak Spanish, Hindi, Bengali and Urdu. We represent clients throughout New York City and the surrounding area, including all of New Jersey.