Understanding Chapter 13 Bankruptcy

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A Chapter 13 bankruptcy is, to put it simply, a type of court-supervised payment plan. When you enter into this agreement, you will pay your unsecured and secured creditors each month, based on your income and any reasonable expenses. It is a court ordered reorganization plan that needs not only the approval of the courts but of creditors as well.

chapter 13 bankruptcy

While there are rare instances when a creditor may force a Chapter 13 bankruptcy as an involuntary bankruptcy, most often it is the debtor who chooses to file a Chapter 13 bankrptcy. It differs from the most common form, a Chapter 7 bankruptcy. A Chapter 13 for example takes up to five years until the debts are settled, where the Chapter 7 can be discharged after six months.

In order to qualify for this type of bankruptcy, you have to have sufficient income and make payments to secured creditors, which includes paying any past due payments. In this agreement, you will also be required to pay all of your disposable income into the plan until all creditors have been paid in full for a period of five years.

Advantages of Chapter 13 Bankruptcy

There are certain advantages offered by Chapter 13 bankruptcy over chapter 7. For example, with this plan, you can modify or even eliminate some of your secured debts. Additionally, chapter 13 can help stop foreclosure so that you have the opportunity to catch up on any past due mortgage payments. The trustees may also be flexible and allow different terms of payments. This may allow the debtor a longer period of repayment. Also, once agreed upon and approved, the individual creditors cannot obligate the debtor to repay debts in full. Finally, under Chapter 13, a debtor can keep the property being paid for.

Additionally, unsecured second mortgage liens are able to be eliminated when you successfully file chapter 13 bankruptcy. This filing will also discharge some of your unsecured debts that are considered non-dischargeable in a Chapter 7 filing.

A Chapter 13 case with its payment plans might stretch out as long as five years, or until the debts are paid for. And a debtor could be force into a Chapter 13 if they fail means test. The means test in a Chapter 7 helps determine if the debtor has enough disposable income that could be used to pay back debts under a Chapter 13.

If the debtor does have enough, the court could determine that the debtor is filing a Chapter 7 under a “presumption of abuse” meaning that the bankruptcy laws would much rather have a debtor paying back all, or a portion of their debts, instead of simply discharging them. While debtors can argue against this “presumption of abuse” by showing special circumstances, is may be easier to file Chapter 13.

If the debtor does have enough, the court could determine that the debtor is filing a Chapter 7 under a “presumption of abuse” meaning that the bankruptcy laws would much rather have a debtor paying back all, or a portion of their debts, instead of simply discharging them. While debtors can argue against this “presumption of abuse” by showing special circumstances, is may be easier to file Chapter 13.

There are other things a Chapter 13 does that a Chapter 7 cannot do (from thebalance.com):

  • Chapter 13 may provide a debtor with bankruptcy protection even if he makes too much money to qualify for a Chapter 7 case or if he received a discharge in a prior Chapter 7 case.
  • Chapter 13 allows a debtor the length of the plan to pay back past due amounts owed on houses, cars and other loans that have collateral.
  • Chapter 13 allows a debtor to pay past due income taxes and domestic support obligations like child support and alimony over the three to five-year Chapter 13 payment plan.
  • Chapter 13 may allow a debtor to set new terms for the payment of a car loan that is older than 2.5 years.
  • Chapter 13 protects the debtor’s co-signer on a personal loan from having to pay.
  • Chapter 13 may allow the debtor to better manage high student loan payments.
  • Chapter 13 allows the debtor to protect property that he might have to give up in a Chapter 7 case.
  • Chapter 13 may allow the debtor to pay his bankruptcy attorney’s fee as a part of the Chapter 13 plan payment instead of all up front.

The payment plans for a Chapter 13 range from 36-60 months. The payments include amounts paid to unsecured creditors, overdue taxes, past due home mortgages and child support. Also included are your monthly home mortgage payments, and car payments.

The plan is designed to help make the payments for the debts affordable as well as manageable and to help catch up on past due amounts on homes, cars, back taxes, alimony and child support. What those payments will be are determined by the court in concert with the debtor and creditors.

Who Can File a Chapter 13 Bankruptcy in Florida?

There are certain requirements that you must meet to file a Chapter 13 bankruptcy in the state of Florida. In many cases, working with a bankruptcy attorney will be the best way to determine if you qualify for this type of filing. Some of these requirements include:

  • Be a Florida resident
  • Have income that is sufficient to support the chapter 13 repayment plan
  • Adhere to the debt limits:
    • $383,175 for unsecured debts
    • $1,149,525 for secured debits

Unsecured debts including credit cards issued by banks, (i.e. Discover, American Express, MasterCard and Visa), medical bills and personal loans. Secured debts will including any debt where the creditor has some type of security interest in the property to guarantee that you pay, (i.e. electronics, furniture, car loans, mortgages, etc.).

Procedures during a Chapter 13 Bankruptcy Filing

When you file a Chapter 13 bankruptcy petition, the automatic stay will go into effect. This is essentially a shield between you and each of your creditors. During the Chapter 13 filing, creditors are prohibited from the continuation or commencement of the judicial proceeding against you and any collection efforts. The Chapter 13 bankruptcy filing will also stop foreclosure, so you have the ability to catch up on your mortgage payments.

If you are thinking about filing for Chapter 13 bankruptcy in Florida, it is a good idea to speak with a Chapter 13 bankruptcy attorney. They can help answer your questions and ensure this is the right type of filing for your needs. For more information, contact our bankruptcy attorneys at the Badgley Law Group by calling 407-781-0420.

 

Additional Reading

5 Ways to Improve Your Credit Score

Options for Florida Bankruptcy

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