What Is Chapter 13 Bankruptcy?
While many people use the term bankruptcy in a generic sense to refer to the process of obtaining debt relief, there are a couple of versions of consumer bankruptcy – Chapter 7 and Chapter 13. At EZ Oklahoma Bankruptcy we strive to make bankruptcy easy to understand. While Chapter 7 is the form of bankruptcy that most people think of in the generic sense as eliminating unsecured debt, Chapter 13 provides a more appropriate option for many debtors facing financial hardships. When debtors file Chapter 13, they make monthly payments that are referred to as “trustee payments,” which cover arrearages on unsecured debts like mortgages and car payments, priority unsecured debts like alimony and child support and typically some portion of other unsecured debts like credit card balances. Any amount of non-priority unsecured debts that remains at the conclusion of the repayment plan, which is typically 3 or 5 years, will be discharged similar to Chapter 7. Because we know that many people facing debt know less about Chapter 13, we have provided answers to key questions below.
How do I know Chapter 13 Bankruptcy is the best option given my situation?
The most reliable way to make this determination is to consult with an experienced Oklahoma Chapter 13 Attorney who can analyze your assets, income and debts so that an appropriate choice can be recommended. However, there are certain situations where Chapter 13 is the logical option, such as:
The debtor cannot meet the income qualification criteria for Chapter 7.
Property in a debtor’s estate cannot be protected from liquidation by applicable bankruptcy exemptions.
Chapter 13 is used to protect a personal residence with equity that exceeds the homestead exemptions or other applicable exemptions.
The financial obligations causing financial hardship are priority unsecured debts that are non-dischargeable in bankruptcy.
Although this is not a comprehensive list of all reasons that one might elect to file Chapter 13, these are certainly the most common reasons.
Will I have to repay my credit cards and hospital bills through my Chapter 13 repayment plan?
The answer to this question depends on your net disposable income after paying the following:
Secured debts on property you are keeping: This includes mortgage payment arrearages and past due payments on financed vehicles.
Current payments on secured debts: While the debtor will make arrearage payments through his or her Chapter 13 trustee payment, the debtor must also continue to make the current payments on secured debts as they come due.
Priority Unsecured Debts: This category of debt must be paid in full or made current if it is an ongoing financial obligation. These are debts that the government has determined must be repaid based on public policy, which may include but are not limited to alimony, child support, fines and penalties assessed by government entities, most taxes and student loans with narrow exceptions and compensation for injuries caused by drunk driving.
If you have sufficient monthly net income available after all of these debts receive a portion of your plan payment and certain allowable living expenses are considered, you may be requires to pay some amount toward unsecured non-priority debts like credit cards, unsecured loans, medical bills, unpaid utilities and similar obligations not secured by collateral. Frequently, Chapter 13 will result in a discharge that eliminates some portion of these types of unsecured debt.
How can Chapter 13 assist me in protecting my home from foreclosure?
There are a variety of ways that Chapter 13 can help distressed homeowners who have fallen behind on their mortgage so that they are facing foreclosure. Once the Chapter 13 is filed, the automatic stay will temporarily stop the foreclosure so that the debtor can pursue Chapter 13 relief. Any past due mortgage balances can be repaid over the term of the Chapter 13 plan while maintaining the current mortgage payments as they come due. If the Chapter 13 plan is approved and the plan is completed, the debtor can protect his or her home from foreclosure.
There are also other situations where a Chapter 13 can be a valuable strategy for protecting a family residence. If you are struggling with unsecured debts like credit card obligations but do not qualify for Chapter 7, you may use Chapter 13 to increase current monthly cash flow by extending payments on past due balance and discharging the remaining balances at the conclusion of the Chapter 13 repayment plan.
Our Oklahoma Chapter 13 Attorneys can analyze your situation and advise you of your best bankruptcy option during an initial consultation. The EZ Oklahoma Bankruptcy Office’s Chapter 13 Bankruptcy Lawyers offer a free consultation so that we can advise you of your rights. We invite you to contact us at (918) 637-1546 or fill out this today!