Chapter 13 Bankruptcy
The price of bankruptcy will include a bad credit report for 10 years, the possibility
that companies will refuse to hire you and you can be denied insurance as well as
a security clearance and licensing. Keep in mind this is all LEGAL. Bankruptcy carries
a stigma for life! Public records containing all of your personal information are
kept in storage and available for 20 years after the bankruptcy has been discharged
or dismissed.
What is Chapter 13 Bankruptcy?
What is the difference between a Chapter 13 and a Chapter 7 bankruptcy?
What are the benefits?
How long does a Chapter 13 Bankruptcy take to pay off?
Do I have to “qualify” for Chapter 13 bankruptcy?
Any disadvantages I should be aware of?
How will my credit be affected?
What is Chapter 13 Bankruptcy?
Chapter 13 is a section of the Bankruptcy Code which helps qualified individuals,
or small proprietary business owners, who desire to repay their creditors but are
having financial difficulty. It allows a debtor to retain his/her property making
payments under a plan. Your slate is not considered “clean” until most or all the
debts are paid.
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What is the difference between a Chapter 13 and a Chapter 7 bankruptcy?
The main purpose of a Chapter 13 Bankruptcy is to allow a debtor to retain certain
assets by repaying the creditors under a plan. The discharge does not happen until
the plan has been fulfilled. The goal of Chapter 7 bankruptcies is to discharge
the existing debt immediately allowing for a “fresh start. You can keep your home
and your car under either plan (provided your equity does not exceed certain limits).
However, under Chapter 7, you wouldn't be able to keep your rental properties, antique
gun collections, etc.
What are the benefits?
The main benefit of a Chapter 13 Bankruptcy is to protect individuals from the collection
efforts of creditors; allowing them to keep their real estate and personal property
with the opportunity to repay their debts through reduced payments. I also takes
less time to rebuild your credit.
Note: You may be able to discharge debts in a Chapter 13 Bankruptcy that would be
non-dischargeable under other Chapters, for example, fraud judgments.
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How long does a Chapter 13 Bankruptcy take to pay off?
Your monthly payment plan is determined by how much you can afford to pay after
deducting necessary living expenses such as mortgage payments, insurance, etc. Normally
the plans last for 36 months unless you request additional time not to exceed 60
months.
For example, say you can afford to pay $200.00 per month (above and beyond your
normal living expenses), you would pay that each month to the Chapter 13 Trustee,
who would disperse it pro rata among your creditors. At the end of 36 months, you
are discharged from all dischargeable unsecured debts, regardless of how much your
creditors have received.
In addition to your plan payments, you must stay current with any ongoing obligations
you have to secure creditors, such as your mortgage. Any Chapter of bankruptcy allows
a debtor to pay any arrearages that existed on the date you file and you can repay
that arrearage over the life of the Plan; but, you must stay current from the filing
date forward with any mortgage payments, etc.
Secured debts (your mortgages) must be repaid in full, but Chapter 13 Bankruptcy
enables you to cure the defaults (reinstate the loans) over 36 months (or up to
60 months with creditor consent and court approval). Restructuring your debt allows
gives you the ability to eliminate junior liens from your real property (your mortgages)
under certain circumstances.
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Do I have to “qualify” for Chapter 13 bankruptcy?
An individual with regular income who owes less than $250,000 in unsecured debt
on the date of filing a petition, and $750,000.00 in secured debt. These debts must
also be for a certain, fixed amount and not subject to any conditions.
Any disadvantages I should be aware of?
Any missed payments under your Plan, will cause your file to be dismissed by the
Court.
How will my credit be affected?
The impact is less damaging than with a Chapter 7 since it will only appear on your
credit report for 7 years after you file. There will be the usual limitations such
after you’ve been discharged such as lower credit limits and higher interest rates.
You will be able to rebuild your credit overtime proving credit worthy. Help yourself
by getting some secured lines of credit to jumpstart the journey.
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