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Why Chapter 13

Why Chapter 13

Most people want a chapter 13 Bankruptcy because they are overwhelmed with debt, don’t qualify for a chapter 7 Bankruptcy, and fear losing their home and car.

The people appear in bankruptcy court on their chapter 13 bankruptcy proposing to give up control of their future income for either a 3 year or 5 year period while making monthly payments to pay part of their debts and while living on a budget which, 1. they propose and 2. must be approved by the court. At the end of the 3 year or 5 year period, the balances owing on most of their debts are discharged (wiped out).

If the court does not approve their chapter 13 bankruptcy plan, another chapter 13 bankruptcy plan proposal can be made. Making chapter 13 bankruptcy plan proposals can continue for so long as the court allows, or until the people give up making proposals. If the court approves the chapter 13 bankruptcy plan, the debts are settled according to the chapter 13 bankruptcy plan, even if some of the creditors object.

The chapter 13 bankruptcy process is different from a debt consolidation, which is not a court proceeding where there is no judge to protect the people. In a debt consolidation with creditors, the creditors call the shots. This is not a debt consolidation, this is a court proceeding, a chapter 13 bankruptcy, and the creditors are subject to the rulings of the court. So, creditors take what they get.

The standards the bankruptcy court uses to approve the budget of the chapter 13 bankruptcy plan are the same as the expense allowances used by the IRS in tax audits. Living life within the allowances set by the IRS can be very difficult over a 3 to 5 year period. Think if it as a "Money Diet." About half of the chapter 13 bankruptcy plans that are approved are not completed. No fun. Too hard. Too too hard. For married people with kids, it often becomes a choice of divorcing or dropping out of the chapter 13 bankruptcy.

After the plan is approved, once a year, the people return to court with their current tax return and repeat the approval process. If an emergency arises, like the family car has to be replaced, the people must return to court and repeat the approval process. If any one monthly payment is not completely made, any creditor can ask the court to terminate the plan. The people must return to court, respond, and repeat the approval process. If the plan is terminated, the people do not get their payments back and still owe their debts. Bummer.

At the end of the period of the chapter 13 bankruptcy plan, if all the required payments have been made, the people keep their property. The remaining balance on secured loans, i.e., the home mortgage or car loan, must continue to be paid. The remaining balance on unsecured debts, i.e., credit cards, doctor bills, judgments, etc., don't have to be paid, they are wiped out (discharged).

Chapter 13 bankruptcy may be a better choice than chapter 7 bankruptcy for those with home mortgage payments. In special circumstances, second or third mortgages can be stripped from a home and not paid (called lien stripping). It is not possible to lien strip a first mortgage. Lien stripping a second or third mortgage in a chapter 13 bankruptcy can be a great deal, possibly saving hundreds of thousands of dollars! The effort doing this is well worth the reward.

How committed must people be to complete a chapter 13 bankruptcy? What can a chapter 13 bankruptcy be compared to? People who have completed an enlistment in the United States Armed Forces or a master's degree program at a university will have demonstrated the kind of committment it takes to complete a demanding 3 or 5 year chapter 13 bankruptcy.

To learn why some people do not qualify for a chapter 7 bankruptcy and possibly how they could get around not qualifying, click means test and pay particular attention to HINT.

To learn why some people do not qualify for a 3 year chapter 13 bankruptcy, have to do a 5 year chapter 13 bankruptcy, and possibly how they could get around that 5 year chapter 13 bankruptcy requirement, click means test and pay particular attention to HINT.

SUMMARY

General experience is Chapter 7 is good, Chapter 13, not so much. An exception to general experience are those individuals whose special circumstances permit them to avoid a second or third mortgage on their home.

Chapter 13 is so complicated I can only explain it in a series of office appointments. Many attorneys do not discuss Chapter 13 over the phone as they feel people who are not committed enough to make an office appointment, are not commited enough.

For information about making an appointment please click here contact us.

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