Chapter 13 Bankruptcy 101 – The Basics

If you have current monthly income that prevents you from qualifying under the Means Test for Chapter 7 bankruptcy, or if you are in foreclosure, or if you have tried to modify your mortgage and have been denied by your lender, or even if you have fallen behind after modifying your mortgage,  I can help you file a petition for protection under Chapter 13 of the U.S. Bankruptcy Code.

In fact, Chapter 13 bankruptcy was initially designed for homeowners who were in foreclosure to allow them to repay their mortgage arrears as well as all, or a portion of, their unsecured debts under the protection of the United States Bankruptcy Law.

While foreclosure remains the primary reason to file for Chapter 13 bankruptcy, individuals who may not be homeowners, or homeowners who are current on their mortgage obligations, but have incomes above the median income in New York and may not be eligible to file a petition for Chapter 7 bankruptcy can file a petition for Chapter 13 bankruptcy to effectively deal with their debts.

Chapter 13 bankruptcy is designed for working people with steady incomes who want to pay their debts but are currently overwhelmed with bills, judgments, lawsuits, and other financial issues. Even if you do not own a home, the filing of a Chapter 13 bankruptcy petition can assist you to regain control of your financial situation.

A Chapter 13 bankruptcy plan allows an individual to repay mortgage arrears and some, or all, other their other debts (such as credit cards, medical bills, etc.), over a three to five year period. While a Chapter 13 plan is in effect, creditors cannot either start or continue their collection efforts, and they must accept what the plan pays them. Any individual, or married couple, even if self-employed, can receive Chapter 13 relief if they owe less than $1,039,000.00 in secured debt (i.e. mortgages, car loans, equity loans), and less than $394,000.00 in unsecured debt.

Upon the successful completion of a Chapter 13 repayment plan, you will receive a Certificate of Completion and Discharge, which extinguishes all obligations to make further payment toward their unsecured debts, even though these creditors may not have been paid in full. In fact, many people repay their unsecured creditors no more than 10, 20 or 30 percent of the total amount owed. Chapter 13 bankruptcy has also helped to save the homes of thousands of Americans every year.

Time Commitment

Chapter 13 bankruptcy is a longer process than Chapter 7. It usually lasts between 3 to 5 years. The extensive length of the process is justified by the fact that over this time period you will be making regular payments to the trustee on a monthly basis which will be used to pay your creditors. The length of time is determined through your assets, ability to pay and the amount of your disposable income.  

Chapter 13 Payment Plan

The Chapter 13 payment plan is a simple attempt to reorganize your finances and improve your debt paying ability by consolidating and breaking down your debts into convenient monthly payments. The plan is designed after a careful assessment of your income through the means test. Payments to unsecured creditors depend upon the calculation of your means test – they may not be allocated any amount at all.

Chapter 13 Plan Requirements

There are 3 different tests a Chapter 13 plan must go through before being approved by the bankruptcy court.

• It should be proposed in good faith. This means the plan should have an accurate representation of your finances and must not intent to mislead the court.
• It should be proposed with the best interest of creditors in mind. To pass this test, your plan should pay your unsecured creditors at least the amount that they would have received under Chapter 7. In most cases, they receive nothing under Chapter 7.
• The best efforts test requires your Chapter 13 plan to pay unsecured creditors a specific amount multiplied by your disposable income

The Trustee

A trustee would be appointed under Chapter 13 to review and assess your proposed payment plan. They reserve the right to challenge your plan in the bankruptcy court if they deem it improper or flawed. The same trustee becomes your main intermediary with the creditors once your payment plan is approved by the bankruptcy court.

Each month you would be obligated to make the prescribed payment to your trustee. The trustee would then apportion the payment according to the structure of your Chapter 13 plan before forwarding the payments to the creditors.

Chapter 13 Bankruptcy Restrictions

Unlike Chapter 7, Chapter 13 bankruptcy is subject to certain restrictions.

• You HAVE to make regular payments as laid out by your monthly payment plan under Chapter 13
• You MUST NOT incur any further substantial debts without the approval of the court
• You MUST maintain insurance on collaterals if any.

Debt Discharge

Once you successfully complete your bankruptcy plan under Chapter 13, all your debts except the non-dischargeable ones are discharged. Non-dischargeable debts include:

•         Taxes
•         Child support and alimony
•         Student loans

All debts discharged under Chapter 13 are personal. If a discharged debt has somebody else other than you liable to make payments, he/she are still obligated to make the payments.

For further information and legal assistance on Chapter 13 bankruptcy in Long Island, get in touch with us at Feinlawyer.com