If you make too much money or have too much in assets so you don’t qualify for Chapter 7 bankruptcy, filing a Chapter 13 may be the right choice for you. Or if you are behind on your mortgage, car loan, or other secured debt and you want to keep the property, Chapter 13 may be the right choice for you. In fact, many debtors who are eligible for a Chapter 7 choose to file for Chapter 13 bankruptcy because it provides them with options and benefits not available through Chapter 7. Unlike a Chapter 7, Chapter 13 bankruptcy provides you the ability to:
keep all of your property including nonexempt assets
catch up on missed mortgage payments
pay off nondischargeable priority debts such as recent tax obligations
reduce your car loan balance through a cramdown (if all requirements are satisfied), and
eliminate unsecured second mortgages (or other junior liens) from your house through lien stripping.
In Chapter 13 bankruptcy, you pay back a certain amount of your debts through a three to five-year repayment plan. You make monthly payments to the bankruptcy trustee who distributes the money to your creditors according to the terms of your plan. You usually pay only a percentage of your unsecured debts, which is based on your income, expenses, assets and the type of debt you have. Filing for Chapter 13 bankruptcy offers debtors many benefits and options not available through a Chapter 7. The following are some of the most common advantages of Chapter 13 bankruptcy.
Keep All of Your Property Including Nonexempt Assets
Unlike in Chapter 7 bankruptcy, the Chapter 13 trustee does not sell your nonexempt property to pay your creditors. This is because you are paying back a portion of your debts through your repayment plan in exchange for keeping all of your assets. However, keep in mind that if you have nonexempt assets, you must pay your unsecured creditors an amount equal to their value through your plan (this is the amount they would have received if you had filed a Chapter 7).
Curing Mortgage Payments Arrears
Most people seek Chapter 13 bankruptcy protection to avoid foreclosure and save their home. If you are behind on your mortgage, you can catch up on any missed payments through your repayment plan while you are protected by the automatic stay. But keep in mind that you must continue to make your regular ongoing mortgage payments in addition to the amount to catch up the arrears.
Priority Debts
Bankruptcy does not discharge (wipe out) certain types of debt. These are commonly referred to as priority debts. Examples of priority debts include alimony, child support, and recent tax obligations. Since priority debts are nondischargeable, Chapter 13 bankruptcy offers debtors a convenient way to pay them off through their repayment plan over the next three to five years.
Cram Down Your Car Loans
If your car is worth less than what you owe on it, you may be able to reduce the balance of your loan to the value of the vehicle through a Chapter 13 cramdown. To qualify for a car loan cramdown, you must have purchased the vehicle at least 910 days (approximately two and a half years) prior to filing your case.
Get Rid of Your Second Mortgage
A really important benefit offered by Chapter 13 bankruptcy that is not available in Chapter 7 is the ability to remove unsecured junior liens (such as your second mortgage) from your house. This process is referred to as lien stripping. Basically, if the balance of your first mortgage exceeds the value of your house, your second mortgage (or other junior liens) is considered wholly unsecured and can be eliminated through lien stripping in Chapter 13 bankruptcy.
If you have a bankruptcy related matter, or if you have concerns about protecting your property in a Florida bankruptcy proceeding, please call the Law Office of Donna R. Joseph, P.A. at 305-341-3410