In a chapter 13 case, the debtor (person that files bankruptcy) puts forward a plan, following the rules set forth in the bankruptcy laws, to repay creditors over a period of time, usually from future income. The exact payment amount varies from case to case, depending on disposable income and the debts that are to be restructured. There are numerous advantages to filing a Chapter 13 Bankruptcy over a Chapter 7. For example, a chapter 13 case may be advantageous when the client is behind on the mortgage and needs to save the home, is upside down in a car loan with inflated monthly payments, or simply does not have enough exemptions to protect all of the property, and therefore a liquidation analysis is necessary. Additionally, the debtor may strip a second mortgage or even reduce the interest rate on existing secured loans, such as a vehicle loan.
For a quick run through of what all a Chapter 13 entails, please view our Steps of a Chapter 13 Bankruptcy page.
The debtor’s plan is a simple document outlining to the bankruptcy court how the debtor proposes to pay current expenses while paying off all the old debt balances. The debtor’s property is protected from seizure from creditors, including mortgage and other lien holders, as long as the proposed payments are made. The plan generally requires monthly payments to the bankruptcy trustee over period of three to five years. Arrangements can be made to have these payments made automatically through payroll deductions.
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