CHAPTER 13: DEBT CONSOLIDATION OR REORGANIZATION

CHAPTER 13:  DEBT CONSOLIDATION OR REORGANIZATION

A chapter 13 is a debt consolidation. It is the bankruptcy filing necessary, when the debtor(s) needs to retain use of a secured asset such as their house and/or automobile(s) and they are behind on the payments. The debtor will propose a repayment plan that will pay all or a portion of all the debts over a thirty six to sixty month period. A chapter 13 used to stop a home foreclosure process or automobile repossessions. It is also used to pay back taxes, child support, stop interests from accruing on federal tax debt but allows the debtor to retain valuable non exempt property.
A chapter 13 may allow the debtor to reschedule secured debt (other than mortgage) and extends them over the life of the plan- often payments are lower. The Chapter 13 reduces interest payments on most secured debts (not Mortgage) to 5 %.
The amount of debt to be repaid is determined by several factors including income and Means Testing. The entire income of the debtor and debtor’s household is included in this calculation and measured against Internal Revenue Service allowances. This assists in arriving at a disposable income amount to guide the Chapter 13 repayment plan. In a Chapter 13 plan, the debtor(s) monthly mortgage note and any arrearages figures plus   automobile debts are all put into the Chapter 13. The disposable income calculation impacts the amount of unsecured debt will be paid and what portion will be discharged.  Student Loan payments at a reduced amount are often made in a Chapter 13.The debtor must have regular income and able to make payment over the course of 3-5 years.
The debtor(s) makes Chapter 13 plan payments either directly or via wage order to the Chapter 13 trustee assigned to the case who distributes payments to creditors.  The debtor needs to have no contact with the creditors while under the chapter 13 protection.
(Note: some exception may apply)