When most people think of Bankruptcy, they think of a clean slate, a fresh start, a way to wipe out debts quickly. However, what this describes is not a Chapter 13, but a Chapter 7 Bankruptcy. So, what is Chapter 13 Bankruptcy?
What Is Chapter 13 Bankruptcy?
A Chapter 13 is a repayment plan which takes 3 to 5 years to complete. The Trustee handling you case takes your payments. That Trustee in turn pays your creditors after taking a percentage for his/her administrative costs. Compared to a Chapter 7, a Chapter 13 Bankruptcy may sound less appealing. There are some good reasons why Chapter 13 would be the best option for someone facing financial difficulties.
Why would I want to do that? I can’t pay my creditors as it is.
Why a Chapter 13 Bankruptcy can often be very helpful:
- You don’t pass the means test. In other words, there’s just too much income in your household, so you don’t qualify to file a Chapter 7. The median income for a family of 4 in Georgia is $68,000 (census.gov). Your bankruptcy attorney can take a look at your income and advise you whether you qualify for a Chapter 7. If your income is too high for a Chapter 7, Chapter 13 is usually an option. So, finding out what is Chapter 13 Bankruptcy is important.
- Stopping Repossession or Foreclosure. If you are behind on your mortgage or car payments when you file a Chapter 7, you’re in default under Georgia law. At this point your creditor can, foreclose on your home and/or repossess your car. However, a Chapter 13 allows you to come up with a plan to repay the arrears (the amount you’re behind) on the house or car and keep those valuable possessions. So, if you’re facing foreclosure or repossession, Chapter 13 is often the best bankruptcy solution. Therefore, contacting a bankruptcy attorney to find out more about what is Chapter 13 Bankruptcy may help you stay in your home.
- You have debts that can’t be discharged in a Chapter 7. If you are behind on taxes, child support and/or alimony, or student loans and are facing lawsuits from the IRS or other creditors, then a Chapter 13 will keep creditors from garnishing your wages and allow you to pay them off over the life of the Bankruptcy (usually 5 years).
- Too much equity. If you have enough equity in your real estate and/or personal property, you might not want to file a Chapter 7 because the court could liquidate (sell off) your property and pay creditors with the proceeds. A Chapter 13, on the other hand, is not a liquidation bankruptcy. You would just pay the value of your equity to your creditors over 3 to 5 years. For example, imagine that you owe $10,000 but your car is valued at $20,000, so you have $10,000 of equity in the vehicle. Some of that can be exempted, but you’ll pay the rest over the life of the Chapter 13 (usually 5 years).
Chapter 13 and Chapter 7: The Ultimate Goal
Remember that both the Chapter 7 and Chapter 13 are bankruptcies, and the goal of both is to receive a discharge from the court. This means that you would no longer be personally liable for dischargeable debts at the end of your case. The main difference is that the goal in a Chapter 7 is to quickly get a fresh start. However, Chapter 13 case focuses on reorganization.
To learn more about Chapter 13 bankruptcy contact the Law Offices of Douglas Jacobson, LLC, for a free consultation.