A Chapter 13 bankruptcy is a reorganization plan, where a consumer filing a Chapter 13 bankruptcy consolidates all their debt and pays back what they can afford (based on their disposable income) for three to five years. An individual looking to file a Chapter 13 bankruptcy either have an asset that they would lose if they filed a Chapter 7, or they make too much income to file Chapter 7 bankruptcy.
A Chapter 13 bankruptcy lasts between three to five years. There are many benefits to a Chapter 13 bankruptcy, some of which may include:
- Paying back and getting current on any arrearages of secured assets (mortgages / auto loans)
- Lowering interest rates on debt
- Stopping utility disconnect notices
- Cramming down automobile loans
- Stripping off second mortgages
- Stopping interest and penalties on tax debt
- Stopping wage garnishment
- Stopping bank attachments
- Stopping foreclosures
There are two very common reasons a consumer might want to explore a Chapter 13 Bankruptcy.
It is the primary technique in stopping a foreclosure and giving a consumer time to pay back the arrears he or she owes on the mortgage. Oftentimes a consumer will fall behind on his or her mortgage because of some financial emergency. This emergency eventually passes, but now the consumer is four or five months behind and cannot pay back the arrears all at once. A Chapter 13 bankruptcy will allow the consumer to pay the normal monthly mortgage payment while paying back the arrears over a three to five year period.
If a consumer simply cannot pay all of his or her monthly obligations, but makes above the medium income in their particular geographical location, then a Chapter 7 bankruptcy might not be a realistic option Filing for a Chapter 13 bankruptcy will allow the consumer to pay their normal bills, while only forcing them to pay a percentage of their unsecured debt. Assuming the consumer makes the payments faithfully for the duration of the Chapter 13 plan, the remainder of the unsecured debts will be discharged upon the plan’s completion.