Chapter 13

A Chapter 13 is a process where you can reorganize or modify most or all of your debts, so that you can keep your assets and pay your creditors in a way that is better for you, not for them. The way you do this is to create a Plan that says how you will treat your creditors. The plan has a payment that you make each month to the Chapter 13 Trustee and then the Chapter 13 Trustee makes little payments to all of your creditors. In many cases you actually pay less in a Chapter 13 than you would in a Chapter 7 (Typically in cases where you are retaining secured assets such as vehicles).

Unique Benefits of a Chapter 13:

Stop foreclosure

A chapter 13 will stop a foreclosure at any time before the Trustee’s sale. This means that you can stay in your home and bring current the mortgage payments that you are behind. After you file, you start making the regular house payment to the mortgage company and you are considered current. As you pay your payment to the Chapter 13 Trustee, the Trustee makes payments to your mortgage company to bring current your house payments. Thus you stay in your house and bring your mortgage current. You cannot do this in a Chapter 7.

Pay Taxes

If you owe past due income taxes, you can include those taxes in your Plan. You can take 3-5 years to pay them, generally at no interest and no more penalties. If the taxing authorities have filed tax-liens, you can still include those debts in your Plan (and even reduce them in some cases) and pay them back without fear of the taxing authority garnishing or taking possession of your property. If you file a chapter 7, the taxing authority will dictate repayment terms to you.

"Strip-off" a 2^nd or 3^rd mortgage that is wholly unsecured.

In a chapter 13, as part of your Plan, if the value of your home is less than the amount owed to the first mortgage, you may be able to have the Court declare that your second or third mortgage "wholly unsecured" and when you receive your discharge, the second or third lien on your home is also discharged. We would need to discuss this with you in person, but this is a benefit available only in a chapter 13.

Reduce your car or furniture loans.

If your car loan is more than 910 days old or your furniture purchase is more than 1 year old, you can reduce the loan as part of your chapter 13 plan. In such cases, only the value of the car or furniture is paid, not the entire loan balance. The interest rate is also reduced to a reasonable rate. If the loan is newer, we can still help out by lowering interest rates. When we meet with you we will explain in more detail how this works, but it generally results is significant savings if you want to keep the property. If you continue to pay in a chapter 7, you do so at the contractual rate.

Keep your assets.

In a chapter 7, the only job that the trustee has is to collect money from you to pay your unsecured creditors. They do this by taking property that you own or are entitled to, selling that property and then paying the money to your creditors. In a chapter 13, you keep your property, because you pay what unsecured creditors would have received if you had filed a chapter 7, through your Plan. Thus, you keep your property (There are exceptions for unpaid for luxury items). This also applies to your tax refunds. In a chapter 13, you get to keep a significant portion of your refund. We will discuss the specifics with you when we meet.