What is Chapter 13 Bankruptcy?

Our Ft. Lauderdale Bankruptcy Lawyer Explains

At the Law Office of Jeffrey Solomon, we help clients determine whether bankruptcy is right for them, and we advise on the right type of bankruptcy. A Chapter 13 bankruptcy case has a payment plan, unlike a Chapter 7 bankruptcy. The payment plan is usually from 3-5 years, and it cannot be more that 5 years.

Sometimes there is not much choice and the client cannot file Chapter 7 bankruptcy and must file Chapter 13 bankruptcy.  Other times, the client, with the help of a Ft. Lauderdale bankruptcy attorney, has a choice as to which Chapter to file.

The following are reasons why you should file a Chapter 13:

1. The debtor “fails” the means test and has excess income over living expenses.  The debtor is not eligible for a Chapter 7 and must pay something back based on the budget.  The amount of debt that must be repaid depends on the budget, and it could be from an extremely low percentage to 100%.
2. In some cases, the debtor would lose assets to the Chapter 7 trustee if the debtor filed Chapter 7.  For example, the debtor might have a free and clear motor vehicle worth $10,000.  Instead of losing the vehicle in a Chapter 7(or having to raise this amount immediately), the debtor can pay this amount over 5 years in a Chapter 13.
3. The IRS can be forced to accept payments over 5 years and may not garnish or seize assets.
4. Save the home from foreclosure. A Chapter 13 bankruptcy allows you to catch up on your mortgage over time. This provides a method to save your home.  However, the problem is that the Chapter 13 cannot force a modification, so it cannot force a reduction of the regular payment. For this reason, all remedies should first be explored including modifications. However, the debtor can strip a second mortgage or equity line. This can be done if the value of the real property is less than the balance of the first mortgage. This means that the total amount of the second mortgage or equity line can be eliminated as a lien on your home.
5. Reduce car payments. Under certain circumstances, your car payment can be reduced or extended, and the principal balance can be reduced. This gets complicated. Ask us about so-called 910 claims; you can see more information about home mortgages and vehicles in Chapter 13 bankruptcy on my other website.
6. Divorce issues.  Property settlement agreements or equitable distribution payments can be reduced in a Chapter 13, not in a Chapter 7. This does not mean that there is an out to paying alimony and child support, which must be paid.

If you need help out of your current financial situation, bankruptcy may be right for you. Contact our Ft. Lauderdale bankruptcy lawyer now for a free consultation.