Chapter 13 Bankruptcy
Chapter 13 bankruptcies are repayment bankruptcies. People may not qualify for a liquidation bankruptcy if they make too much money, they have filed a Chapter 7 bankruptcy in the past 8 years or they have too many nonexempt assets that they wish to keep.
A Chapter 13 can provide a person who is faced with a foreclosure the opportunity to catch up on their mortgage over a period of time as opposed to bringing a mortgage current immediately. Imagine a situation where someone who is single makes over $100,000 a year, in that situation the legislature has determined that person makes enough money that he or she can pay some if not all of their debts back.
Another instance where one would want to file a Chapter 13 Bankruptcy is when they have nonexempt assets they don’t want liquidated in a Chapter 7. Suppose one has a completely restored 1967 Corvette that is worth $50,000.00 with nothing owed on it. This is an asset that could be sold and used to pay one’s creditors. But that person doesn’t want the Corvette sold. In this situation a person could file a Chapter 13 and pay back the nonexempt equity in the Corvette over a period of 36 to 60 months.
In Chapter 13, you make one payment to the Chapter 13 trustee which is distributed amongst your creditors.
The creditors may be paid 10 cents on the dollar. They may be paid back everything that is owed to them. It may be possible that the general unsecured creditors may be paid nothing, each situation is different.
I explain to my clients one can compare a Chapter 13 bankruptcy to a loan consolidation where payment is made to a trustee who then distributes that money to your creditors.
Your creditors must work with the bankruptcy court and cannot continue to attempt to collect on their debts except through the bankruptcy itself. Debt still owed at the end of your Chapter 13 case may be discharged.