Chapter 13 Bankruptcy allows individuals and married couples to take advantage of the many benefits people receive from the protection of the United State Bankruptcy code. People have found that if they are behind on their mortgage payments and are looking at foreclosure, filing a chapter 13 bankruptcy may allow them to save their home while stopping the often annoying and sometimes harassing telephone calls from bill collectors.
Chapter 13 bankruptcy is sometimes called Wage Earner Bankruptcy because it requires the person or couple filing the bankruptcy petition to make monthly payments to the chapter 13 Trustee over a period of 3 to 5 years. The following are often included in the plan, meaning the debtor pays the trustee and the trustee then makes payment on the following items:
• Past due amounts on a home or back rent
• Car payments
• Taxes
• Secured loans such as items purchased on store credit such as Nebraska Furniture Mart, Best Buy, Furniture Row, etc.
• Past due child support and/or alimony
• Credit cards
• Medical debt
• Bills such as cell phones, internet, cable TV, utilities, etc
In fact all debt owed by the person or couple filing is included in the plan with the exception of future or ongoing mortgage payments, if the debtor owns a home that has a mortgage. So if a person owned a house and car and he or she owed money on both of them, after they filed for chapter 13 bankruptcy they would continue making the mortgage payment but would no longer make the car payment. The monthly chapter 13 plan payment that they make to the trustee would include an amount for the car payment; the chapter 13 trustee would pay the loan on the car, not the person filing for bankruptcy protection.
Why would a person or a couple file chapter 13 instead of chapter 7 bankruptcy?
• They either have too much money left over at the end of the month or they make too much money according to guidelines provided by the IRS.
• They have property that is not exempt, meaning that if they filed chapter 7, the chapter 7 trustee could claim it. This may include a higher value car that is paid off or a home with more than $60,000.00 of equity.
⁃ A person who has property such as this gets to keep that property, but they typically pay the value of that property to the trustee over a period of 3 to 5 years. In many cases this payment is far less than what the person would be obligated to pay outside of bankruptcy
• They are delinquent on their house payments and / or car payments. Paying the past due amount (called an “arrearage”) over 3 to 5 years without the fear of foreclosure or repossession helps thousands of people each year.
Once your repayment plan is approved by the court and the trustee, your creditors have to accept the payments they receive and they are not allowed to contact you during the course of your bankruptcy plan. You are also protected from continued interest on your unsecured debts, lower interest on your car loan and no late fees or penalties. This gives you a chance to regroup, get your debts paid off and get the fresh start you deserve.