About Chapter 13 Bankruptcy

Chapter 13 Bankruptcy Basics

You can save your home from foreclosure and discharge other debt with a chapter 13 bankruptcy, also known as a "wage earner reorganization". 

Filing a chapter 13 bankruptcy creates an "automatic stay" which immediately stops foreclosures and all other collection activities by creditors. You then file a plan to deal with the different types of debt you have. A typical plan provides for repayment of some or all of your debt through monthly installment payments over a period of three to five years, but there are many possible variations. A chapter 13 plan can be funded not only with wages, but also with business income or contributions from relatives. 

If a foreclosure has begun, you should contact me as soon as possible prior to the law day or foreclosure sale. In a typical "cure and maintain" plan, you will resume making current mortgage payments, beginning with the next payment contractually due under after the filing, and pay the arrears in installments through the plan. Upon completion of the plan, your mortgage will be current. In many cases, paying the mortgage (even with the arrears) will be easier than before because you will also be able to discharge some or all of your unsecured debt. It is often possible to pay zero to unsecured creditors, like credit cards and medical bills. 

If you have a second mortgage or a home equity line of credit (a HELOC) that has become completely unsecured because of a decline in your home's value, you may be able to avoid that mortgage completely. In such situations, we will ask the court to determine the value of the property. If it is less than the balance of the first mortgage, the court will find that the second mortgage is wholly unsecured, and it will be treated in the plan just like your credit card debt and discharged upon completion of the plan. 

Chapter 13 can also be a solution if you cannot qualify for chapter 7 because the "means test" indicates that your income is too high. In chapter 13, the means test determines the minimum percentage of your unsecured debt you are required to pay, not your eligibility. I will minimize that percentage to the greatest extent possible. 

If the court finds that your plan meets the requirements of the law and confirms the plan, it is binding upon your creditors, whether they like it or not. So, unlike mediation and debt consolidation attempts, their consent is not required.  

If you are facing foreclosure or have credit card debt or medical bills that you cannot manage, please e-mail or call me ((860) 299-6263) to set up a free consultation.