How does Chapter 13 bankruptcy work?
Chapter 13 is a type of bankruptcy that allows individuals to repay some or all of their debts over a three to five year period with either zero or substantially reduced interest.
It can be used to become current on missed mortgage payments, lease payments, and even car payments.
Chapter 13 bankruptcy is only for individuals and does not apply to business entities although it is possible for individuals that operate sole proprietorships or even corporations to file bankruptcy to eliminate or repay individual debts.
Individuals must set forth a plan of reorganization which is typically reviewed by the Chapter 13 Trustee and the impacted creditors prior to approval.
Benefits of Chapter 13 Bankruptcy?
- Allows a person to repay their debt over the course of 3 to 5 years.
- It can be used to stop a foreclosure sale.
- It can be used to help a person get current with car payments.
- It can be used to pay back less than the amount owed on a vehicle, if the vehicle is worth less than what is currently owed.
- It can be used to reduce the interest rate of loans to a market rate of interest.
- It can be used to remove judgment liens.
- It can be used to stop wage garnishment.
If you are upside down on a car loan, you may be able to reduce the amount owed to market value.
If you are leasing your vehicle, you can choose to keep the vehicle or terminate the lease and return the car.
If behind on car payments, you have the ability to re-arrange your payment schedule in order to get back on top of your payments.
Protect your assets, protect your property.
Ch 13 Bankruptcy can help protect your assets by creating a payment plan in order to gradually pay back creditors.
Ch 13 repayment plans allow you to pay off some debts in full, while only paying a portion of others.
3 to 5 year repayment schedules buy homeowners time to protect their properties and stop foreclosures. Many homeowners are able to pay their debts in full at the end of their Ch 13 bankruptcy and keep their possessions/property entirely.
Who is a good candidate for Chapter 13 bankruptcy?
You may be a good candidate for Chapter 13 bankruptcy if:
You have junior liens on your property and your property is worth less than the first lien
You have one or more junior liens on your property and your property is worth less than the first lien on your property or worth less than all the other liens on the property combined that are senior to the lien that you wish to avoid.
You have a pending foreclosure sale and wish to stop the sale
You have a pending foreclosure sale and wish to stop the sale and pay back your mortgage arrears over a period of 3 to 5 years.
You have a vehicle that was recently repossessed
You have a vehicle that was recently repossessed and you wish to get the vehicle back and pay back the debt owed on the car over a 3 to 5 year period.
You have a lot of unsecured debt
You have a lot of unsecured debts that continue to accumulate high amounts of interest.
You want to pay back your debts but cannot afford the minimum payments
You really want to pay back your debts but simply cannot afford the ongoing minimum payments and need an extended repayment period with a reduced interest rate to pay back all of your creditors.
Your income is too high to file chapter 7 bankruptcy
You are not eligible to file for Chapter 7 bankruptcy because your income is too high under the Chapter 7 Means test.
Who is eligible for Chapter 13 Bankruptcy?
Individuals with regular sources of income are eligible for Chapter 13 bankruptcy.
Sometimes individuals who want to reorganize their debts in bankruptcy need to file Chapter 13 bankruptcy instead of Chapter 7 because their income is considered above median under the Chapter 7 Means test.
Regular income is necessary because individuals in Chapter 13 are required to file a plan of reorganization to repay some or all of their debt and they must prove that they can afford to fund their plan.
Individuals whose total secured debt exceeds $1,257,850.00 or whose total unsecured debt is more than $419,275.00, are not eligible to reorganize under Chapter 13 and may wish to consider filing a Chapter 11 bankruptcy case. On June 21, 2022, Congress enacted the Bankruptcy Threshold Adjustment and Technical Corrections Act (the “Act”) which increased the aggregate debt limit for noncontingent, liquidated debt (both secured and unsecured) to $2,750,00.00. However, this increased debt limit sunsets on June 21, 2024, at which time the original debt limits are set to be reimposed unless the “Act” is extended by Congress.
Corporations are not eligible for Chapter 13 and must consider either a liquidation under Chapter 7 or a reorganization under Chapter 11 if considering bankruptcy as an option for their financial problems.
How do I know if Chapter 13 Bankruptcy is right for me?
Although Chapter 13 Bankruptcy is a very powerful tool, it is not always the best choice for everyone. Speak with a Los Angeles bankruptcy attorney today to determine if filing for Chapter 13 Bankruptcy is the right option for you.
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