Chapter 13 bankruptcy is very different from Chapter 7 bankruptcy. Chapter 13 is a type of “reorganization” used by individuals. Unlike in Chapter 7, non-exempt assets are not liquidated in Chapter 13. Rather, if non-exempt assets exist, a Chapter 13 debtor can simply pay for them over a 3 to 5 year plan. This allows debtors to retain their assets throughout the bankruptcy.
Your Chapter 13 plan may address the repayment of IRS debt or the repayment of arrears on a car loan, home mortgage or any other secured debt. Once a plan is confirmed, that confirmed plan becomes your new contract with your creditors.
In order to qualify for Chapter 13, you must have income. Furthermore, if you are trying to keep secured assets, you must have enough income to afford those debts as restructured in your Chapter 13 plan. Finally, with respect to your unsecured creditors, like credit card companies and hospitals, you only repay what you can afford, if anything. You create the budget and your disposable income will determine what you can afford to pay.
Contact us now to discuss your details and better understand how a Chapter 13 repayment plan can benefit you.
Chapter 7 vs. Chapter 13
The majority of personal bankruptcies filed in Florida are Chapter 7 filings. A Chapter 7 bankruptcy typically lasts around 3 or 4 months, which is much shorter than a Chapter 13 bankruptcy. A Chapter 13 bankruptcy typically lasts between 3 and 5 years; however, it may offer some advantages over Chapter 7. Some of the benefits to filing a Chapter 13 over a Chapter 7 include the following:
- In Chapter 13, you may be able to eliminate or “strip” a second mortgage lien or HOA lien on your real estate. To do this, the lien must have no equity at the time of filing;
- In Chapter 13, you may be able to reduce or “cram” your secured debts to the value of the collateral. On car loans, the debt must be at least 2 1/2 years old to “cram” it to the car’s value;
- In Chapter 13, you can pay the missed payments on a house, car or other collateral over a three to five year period. These missed payments are known as “arrears” in bankruptcy;
- In Chapter 13, you can discharge certain debts that are not dischargeable in a Chapter 7 bankruptcy. For example, in Chapter 13 you can discharge certain debts related to a divorce or a separation agreement. You can also discharge civil fines and penalties in Chapter 13. These debts are exempt from discharge in a Chapter 7 bankruptcy;
- In Chapter 13, you can continue to operate a business while you are in the bankruptcy. In contrast, a Chapter 7 bankruptcy may require that you close your business, depending on key facts.
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