Chapter 13 Bankruptcy
A “wage earner’s plan” is the common name for the process under Chapter 13 of § 11 of the U.S. Code, also known as the “Bankruptcy Code.” A chapter 13 bankruptcy permits you to keep all of your assets while you discharge unsecured debts through a customizable payment plan. If you and your spouse’s combined yearly income is lower than Florida’s median income, the plan will last for three years (or less in certain circumstances). It will last for five years if your income is equal to or greater than the state’s median income. Eligibility for chapter 13 bankruptcy requires that your unsecured and secured debts are less than amount which is regularly adjusted for inflation. You will also need to receive sufficient income to pay for your necessities and keep up with your required payments during the plan.
An attorney handling a chapter 13 bankruptcy must submit a debt repayment plan in addition to filing many of the same documents that are required in a chapter 7 bankruptcy. The plan is required to: 1) commit all disposable income to the plan, with certain exceptions, 2) provide full payments for all claims entitled to “priority” under § 507, 3) provide the same treatment for all claims within a particular class of claims (if the plan classifies claims), and 4) provide for unsecured creditors to receive at least as much as they would have under chapter 7’s “best interest of the creditors” test.
The key benefit of a chapter 13 case is that you can keep valuable property, such as your house and car, that you might otherwise lose in a chapter 7. However, you must make the payments under the plan in order to retain these assets. Payments under the plan will usually be at least as much as your regular monthly car and mortgage payments, plus some extra payments to cover arrears.
Under chapter 13, the court also has the exceptionally powerful ability to modify the rights of creditors with unsecured claims and even those with secured claims, other than ones where the security is your primary residence. This provision allows the court to “cram down” adjusted interest rates and loan payments, or even change the balance owed. However, to do this you must be able to pay off that debt in full during the course of your plan. A chapter 13 also allows the possibility to “lien strip” a second mortgage so that it can be discharged in bankruptcy. This is possible in situations where your house or other property is “underwater,” which means that you owe more on the first mortgage than the property is worth.
Chapter 13 bankruptcy could be the right option for you if you:
- have a steady income;
- own your home, subject to a first and second mortgage, and the second mortgage is completely “underwater”;
- are behind on debt payments, but can catch up if given some time; and/or
- have valuable property that is not exempt, but you can afford to pay creditors from your income over time.
For more information on chapter 13 bankruptcy and whether it is right for you, call us today at (754) 400-5150 or contact us online. Let the lawyers and staff at the Law Offices of Evan M. Rosen serve you!