CHAPTER 13 BANKRUPTCY

WHAT IS A CHAPTER 13 DEBT CONSOLIDATION PLAN?

Chapter 13 is usually used if you (1) are about to lose your home to foreclosure, (2) about to have your vehicle repossessed, (3) owe Internal Revenue back taxes, or (4) have a Student Loan debt. Chapter 13 is a debt consolidation plan under which a person may repay a portion or all of his or her debts under a Federally approved financial plan. The most important thing about a Chapter 13 is that it allows you to keep all of your valuable property such as your home, vehicles, household goods, furniture, appliances, and retirement plans. Secured debt on personal property (vehicles, furniture, appliances, etc.) is paid back with interest based on the value of the items securing the debt, rather than the amount owed. Unsecured debts such as credit cards and medical bills, are paid back with no interest, and are paid only what you can afford.

CAN FORECLOSURE OF YOUR HOME BE STOPPED? YES!

Filing a Chapter 13 stops foreclosure indefinitely. As long as the Chapter 13 plan payments to the Trustee and the post-petition mortgage payments are kept current, the mortgage company cannot foreclose on your home.

CAN REPOSSESSION OF A VEHICLE BE STOPPED, AND WHAT IS A "CRAM DOWN"?

A Chapter 13 filing stops any repossession attempts of a vehicle. A Chapter 13 plan may provide for a vehicle to be paid back based only on the value of the vehicle and not the amount of debt owed. This is called a "Cram Down". If the vehicle is worth only $10,000 and the debt is $18,000, the debt will be paid back with interest on $10,000. The difference of $8,000 will be paid with no interest, and only paid what you can afford.

ARE CO-SIGNERS PROTECTED? YES!

A co-debtor is protected by your Chapter 13 bankruptcy, if the Plan proposes to repay the debt, and if the following conditions are met:

  1. The debt is a consumer debt.
  2. The debt is not incurred pursuant to a business transaction.
  3. The co-debtor was not the sole benefactor of the debt.

WHAT DOES CHAPTER 13 DO TO MY CREDIT?

In most instances, filing a Chapter 13 will not hurt your credit any more that it is already hurt or going to be hurt. Often, it helps your credit because it shows a potential credit granter that you have used federal laws to solve your debt problems rather than doing nothing.