Chapter 13 Allows for Reorganization of Many Secured Debts

If you are considering filing for bankruptcy, chances are you have many questions. While Chapter 7 bankruptcy would allow you to have most unsecured debts discharged within five to six months, you may not be eligible if your income falls above the median household income in your state. Even if you are eligible for Chapter 7 there could be the chance that such an option is not the best route for your situation in terms of debts, assets, and disposable income level.

Chapter 13 is known as the income-based bankruptcy, as opposed to the liquidation bankruptcy of Chapter 7. In this bankruptcy, you are paying back creditors, but over a long period of three to five years, and with many of those debts re-organized before they are satisfied and before the bankruptcy is considered complete. While many unsecured debts are the reason that individuals in the US find themselves filing for bankruptcy, there may be secured debt that you want to keep paying on too—like your home mortgage or your car loan.

In some cases, Chapter 13 may be the best option for fending off foreclosure, or other actions like repossession of a vehicle. Initially, no matter what debts you are worried about staving off first—they are protected as the automatic stay kicks in immediately upon filing in most cases. This injunction brings most collections activities to a halt throughout the duration of your bankruptcy. There can be some exceptions to the application of the automatic stay.

If you have filed multiple cases in the past year, the automatic stay might not apply in a new case unless the bankruptcy judge orders that it applies. Even if the stay does apply, a creditor may request that the court end the stay, especially if you do not follow through on making the payments required in a Chapter 13 case.

The key is that while most unsecured debts are discharged in Chapter 7 and eventually discharged at the end of Chapter 13, often with little or no payments, secured debts typically must be handled differently. In Chapter 7, if you wish to keep a home or car, usually you must continue making payments to the creditors under contract terms and you have very little time to get current on those payments if you are delinquent.

A Chapter 13 case allows you to restructure vehicle payments over the 3 to 5 years of plan payments without having to worry about catching up on delinquent payments, and often at a better interest rate than contract terms. Mortgages in a Chapter 13 are different, as special rules apply. In most cases, a Chapter 13 provides a way to catch up on arrears on your mortgages over time by payments to a trustee, but you must continue to pay your regular monthly mortgage payments.

You probably have many questions about bankruptcy, including which type of bankruptcy will work best for you,  how much you will have to sacrifice (very little in many cases), and whether you will have to go to court. Speak with a skilled bankruptcy attorney from the offices of H. Lehman Franklin, P.C. Call now to learn more at 912-764-9616, or contact us online.