Filing a Chapter 13 Bankruptcy
How a Chapter 13 Works
If you can’t pass the Means Test, you will need to file a Chapter 13 bankruptcy. When the Chapter 13 bankruptcy petition is filed, an automatic stay goes into effect prohibiting creditors from taking any further action against you while the bankruptcy case is pending, unless they come into court and get relief from the stay.
A repayment plan (typically over 3 to 5 years) must be submitted to and approved by the trustee. The payment will be based on your current monthly disposable income.
Under a Chapter 13 plan, your debts are prioritized, and generally priority debts, such as past due taxes, and secured creditors get paid first, with any remaining disposable income going to pay unsecured creditors. If all payments are made under the plan, your debt (provided it is dischargeable) remaining at the end of the plan will be discharged.
Powerful Planning Tools
Filing bankruptcy under a Chapter 13 plan offers some very powerful planning tools. For example, need to stop a foreclosure to stop foreclosure or avoid repossession, by filing a Chapter 13 bankruptcy, you can catch up past due payments (over a period of three to five years) so long as you are able to keep your current payments up to date.
Chapter 13 may be the right choice if you have unpaid income taxes or debts from a divorce. With my experience as a bankruptcy lawyer, I can help you decide if filing a Chapter 13 bankruptcy is your best option.
Eliminate Your Second Mortgage
Many homeowners owe more on their mortgage than their home is worth. The good news is that if you have a second mortgage and the value of your home is less than what you owe on your first mortgage, you may be able to cram down the second mortgage in a Chapter 13 bankruptcy.
The effect is to make the second mortgage an “unsecured” debt which is dischargeable. This could be just the strategy you need to stay in your home and avoid foreclosure. An experienced bankruptcy attorney can see if you qualify.