Chapter 13 Bankruptcy

by
Sandra Helbig

Chapter 13 is a plan for the installment payments of your debts over a period of usually 3 years, but not to exceed 5 years. It is different from a Chapter 7 Bankruptcy because Chapter 7 Bankruptcy discharges you from all your dischargeable debts without an installment payment plan.

Then why should I choose Chapter 13 Bankruptcy instead of Chapter 7 Bankruptcy?

Chapter 13 allows you to keep assets that have been pledged for a loan when you have fallen behind in your monthly payments.

For example, you own a home. It is worth $200,000. There is a $100,000 balance on the mortgage. You are 5 months behind in your mortgage and foreclosure is pending. In a Chapter 7, the house would have to be sold so that the $100,000 in equity (minus, of course, your $15,000 exemption) could be liquidated and distributed to your creditors, with the balance, if any, to your unsecured creditors and perhaps to you. You want to try to keep the house. A Chapter 13 Bankruptcy automatically stays any foreclosure action and allows you to catch up on your mortgage by permitting you to pay the past due monthly mortgage payments in installments over a period of time. You would also have to pay the current monthly installment of principal and interest on the mortgage, plus taxes and insurance as they become due, in addition to the installment payments under the plan.

In addition to being behind on your mortgage, you own a car which you purchased 2 years ago for $15,000. You are 3 months behind in your car payments and momentarily expect your car to be repossessed. A Chapter 13 Bankruptcy would enable you to pay the past due monthly payments in installments over a period of time. The automatic stay would prohibit repossession of the vehicle. You would have to pay the current monthly installment of principal, interest, and insurance due on the car as they become due, in addition to the monthly payments under the plan in order to keep the car.

In a Chapter 13, would I have to pay the past due installment on my credit cards in addition to the monthly installment payment due under the plan?

No. You choose a percentage or amount to repay to the unsecured creditors through the Chapter 13 plan. This percentage or amount of unsecured debt repaid through a Chapter 13 plan is usually equal to whatever equity you have in your assets minus your exemptions. Thus if you have $100,000 in equity in your house and no equity in your car and you owe $10,000 in unsecured debts, you will probably have to pay your unsecured creditors 100% through the plan. But if you have $100,000 in equity and have $300,000 in unsecured debt, you probably will have to pay approximately 1/3rd of your unsecured debts through the plan. If you have $10,000 in unsecured debts, but no equity in assets, you probably will pay only a small percentage of the unsecured debts through the plan. What you have to pay your unsecured creditors through the plan depends the amount of equity left in your assets after deducting the liens and your exemptions.

What are unsecured debts?

Unsecured debts are money obligations for which the creditors hold no lien. For example, most credit card bills, doctor bills, hospital bills, deficiencies and many loans.

What are the requirements for a Chapter 13 Bankruptcy?

It must be feasible. This means that you must have enough regular income to pay the monthly plan payments (which includes the past due mortgage and car payments and the designated amount to be paid to the unsecured creditors), plus your current monthly mortgage, current car payments, utilities, food, clothing, child support payments, etc. You do not have to continue to pay your unsecured creditors, because they will be paid through the plan. You have to continue to pay your current mortgage and car payments, while at the same time paying the installment payment required by the plan.

This sounds very complicated. How do I figure all of this out?

It takes a little time and effort, but if you are organized and have all the information on your financial affairs available, you and your attorney can create a feasible plan.

What happens after I make all the payments under the plan?

You have been permitted the time necessary to bring your mortgage and car payments up to date. You keep your house and car (so long as you made all the payments required by the plan plus your usual monthly payments not included in the plan). You are discharged from further payment of dischargeable debts.

What if my home has already been sold in foreclosure sale or my car has been sold after being repossessed?

If that happens, you have waited too long to save your home or car. You can, however, be discharged from any deficiency (the amount the mortgage company says you still owe after the house has been sold) claimed by including the debt in your bankruptcy petition.

Is there a Bankruptcy Court near where I live?

Bankruptcy is a right granted by the United States Constitution. Therefore, it is available in all 50 states.

Sandra D. Helbig
Attorney at Law
16 Highland Place
West Orange, N.J. 07052
(201) 731-9828

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