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Chapter 13

Bankruptcy: Chapter 13

Chapter 13 is known as the “adjustment of debts” section of the Bankruptcy Code.  Chapter 13 allows individuals with regular income and certain amounts of secured and unsecured debt (set by statute) to propose and file a plan to repay their creditors.  Chapter 13 is similar to Chapter 7 in so much as both involve a trustee, provide for certain exemptions and utilize pro-rata distribution.  Like a Chapter 7 case, the Chapter 13 debtor seeks to obtain a discharge, yet the Chapter 13 discharge is often broader (applying to more debts) than the Chapter 7 discharge.  Unlike Chapter 7, the discharge in a Chapter 13 case comes after all payments have been made pursuant to the court approved Chapter 13 plan. 

Chapter 13 can be an extremely effective tool to save your home, so long as you act prior to foreclosure sale.  Chapter 13 repayment plans can be drawn out over several years and can reinstate and cure outstanding mortgage defaults.  Chapter 13 debtors benefit from the Bankruptcy process by, subject to the particular facts of the case, paying unsecured creditors and certain secured creditors (though not presently, mortgage lenders) less than the full amount of their claims, reducing penalties and interest and availing themselves of up to five years to repay their debts. 

Key attributes of a Chapter 13 Bankruptcy include:

• Ability to Reinstate Home Mortgage

• Extend Repayment Terms to Tax Lien Creditors (IRS and State) over time

• Reduce or Eliminate Certain Monthly Payments

• Flexibility in Formulating Repayment Plans

• Broader Discharge