Both Chapter 7 and Chapter 13 bankruptcy provide you with protection of your creditors and a discharge of certain kinds of debt. In Chapter 13 bankruptcy, the focus is on the protection.
When you file a Chapter 13 bankruptcy case, among the documents you file with the court is a “Chapter 13 Plan.” For most people that plan lasts for 5 years/60 months. You propose to pay a certain amount each month to the Chapter 13 trustee, who in turn will distribute those funds to your creditors.
Certain debts need to be paid in full through your Plan: Mortgage arrears if you intend to keep the property, car loans, recent income taxes, domestic support arrears, and government fines and penalties. Other creditors (your unsecured, non-priority creditors) get what money is left over in your Plan. Exactly how much that is (whether it’s 1% or 100% of what they’re owed, or somewhere in between) is based on your income and your assets. Whatever is unpaid is discharged upon completion of your plan.
So why would anyone choose to file Chapter 13 bankruptcy instead of Chapter 7 bankruptcy, when it’s so long and only offers a partial discharge of unsecured debts? The answer is simple: Protection.
The moment you file your Chapter 13 bankruptcy case, you come under the court’s protection. So long as you’re in your Plan, no creditor can attempt to collect a debt from you. That means no foreclosures, no repossessions, no lawsuits, no garnishments, no phone calls or letters.
So if you’re behind on your mortgage and threatened with foreclosure, a Chapter 13 bankruptcy case stops the foreclosure and gives you five years to get caught up on those arrears. And since you’re not making payments on your credit cards, you’ll be better able to make your ongoing mortgage payments. This is also true for cars threatened by repossession. Or, if the IRS is threatening you with a tax lien, a Chapter 13 bankruptcy case prevents that lien and preserves the dischargeability of the non-priority amounts.
Chapter 13 bankruptcy can accomplish other goals, too. Some homeowners can use it to “strip off” second mortgages. Some people can “cram down” the amount owed on their car. Borrowers of student loans can use Chapter 13 bankruptcy to get 5 payment-free years.
Chapter 13 bankruptcy is a much more complicated type of case than Chapter 7, but there are more things you can accomplish. It’s preferable for people who need more than just the simple discharge of unsecured debt offered by Chapter 7. Whether your located in Oakland or San Francisco or any of the surrounding counties, Boeing Law Offices can help you with Chapter 13 bankruptcy.
The foregoing is intended for general informational purposes only and does not constitute legal advice.