A Chapter 13 bankruptcy filing allows you to create a repayment plan to catch up on your debts, especially to your mortgage lender or car dealer if you are trying to avoid foreclosure or prevent repossession.  Filing a Chapter 13 bankruptcy gives you the opportunity to propose a payment plan where you will make monthly payments to a bankruptcy trustee for a period of 3-5 years. When a Chapter 13 bankruptcy is discharged, you will be current on your secured and priority debts, and any remaining unsecured debts may be eliminated if not paid as part of your payment plan.

Advantages of Chapter 13 Bankruptcy

• Opportunity to save your home from foreclosure by stopping foreclosure proceedings and proposing a repayment plan to cure delinquent mortgage payments over a 3-5 year period.
• You may be able to eliminate your 2nd or 3rd loans secured against your home if the value of your property is less than what you owe on the 1st mortgage.
• You may be able to recover your repossessed vehicle if the repossession was within 60 days of the filing of the bankruptcy.
• You can create an affordable repayment plan over a period of 3-5 years rather than having to pay a lump sum amount.

Eligibility to File Chapter 13 Bankruptcy

• You have unsecured debts that are less than $394,725 and secured debts that are less than $1,184,200.
• You must be able to show the court you have sufficient income to afford a proposed plan payment for the duration of the Chapter 13 bankruptcy repayment plan.

Determining the Amount of your Bankruptcy Plan Payment

• Your Chapter 13 Bankruptcy payment plan amount depends on your income, your assets, and the amount of the debt you must repay.
• To roughly calculate the monthly bankruptcy plan payment, add up all past due mortgage payments, tax debt within the last 3 years, past due alimony or child support, attorney fees, past due vehicle loans, and add the bankruptcy trustee fee of about 10%.  Then divide by 36 or 60 months depending on the length of the plan to come to a rough monthly repayment amount.
• Because this is a repayment plan bankruptcy (i.e. creditors will be paid a sum of money over a period of 3 or 5 years), income is necessary for this type of bankruptcy to be successful.  Rule of thumb: income – expenses must have a surplus. All disposable (income-expense) income must go towards the plan payment.
• Generally, unsecured creditors are not paid as part of your Chapter 13 Bankruptcy payment plan and once you complete your repayment plan, the unsecured debt is eliminated when your bankruptcy is discharged.  However, if you have too many assets (after applying the exemptions), you must pay out to unsecured creditors within your repayment plan whatever amount of assets we cannot protect through exemptions.