Top Chapter 13 Attorney serving Jacksonville, Orlando, Daytona FL

Chapter 13 Bankruptcy - Personal Reorganization & Debt Consolidation

Chapter 13 of the United States Bankruptcy Code allows individuals with regular income to reorganize their debt and develop a plan for repayment of all or part of their debts over a three to five year plan. A Chapter 13 Bankruptcy is an excellent alternative for individuals who exceed the income requirements for the Chapter 7 Means Test. A portion of your debt is paid back to creditors as determined by your disposable income and expenses. If you read the requirements for Chapter 7 Bankruptcy but want an alternative that would allow you to retain more of your assets, then read what filing Chapter 13 can do for you.

Chapter 13 Attorney serving Jacksonville, Orlando and Daytona

What can Chapter 13 do for me?

• Chapter 13 can Stop Foreclosure of your home. Individuals that do not qualify for a Chapter 7, can file Chapter 13 bankruptcy to keep possession of a home that has fallen into foreclosure. By filing Chapter 13, the foreclosure proceedings are stopped and a plan of reorganization is developed to allow the filer to pay back the past due amount over an extended period of time.
  

  For Example:

  1. Let's say you lost your job and fell behind on your monthly payments. Now, you are working again but you are buried in debt and the mortgage company doesn't want to work with you. Assume your mortgage payment is $1,000 a month and you are 10 months behind, plus penalties of $500 for a total due of $10,500. You are worried that your vehicle will be repossessed since you are 3 months behind on car payments. The interest rate on the car is 16% and the balance due is $15,000. However, the vehicle is only worth $10,000. You had to cash in a 401k for living expenses while you were unemployed and now owe the IRS $500 for last year's taxes. You also have credit card debts totaling $55,000. So, how do you keep from drowning in debt.
  2. Under Chapter 13 Bankruptcy, you can combine all the debt into one monthly payment. The keep the mortgage current, you would pay $1,000 each month for the next 3 to 5 years. The arrearages on the mortgage of $10,500 and the IRS debt of $1,500 would also repaid monthly over the next 36 to 60 months. If your car was purchased over 2 1/2 years ago, you can take the current value and re-amortize it at a lower interest rate (say 6%) over the next 36 to 60 months. The rest of the $55,000 debt will only be paid if you can afford to pay it, or if you had assets that were not exempt. For this example, we will assume $3,000 of non-exempt assets.
  3. Your monthly payment plan will be a mortgage payment of $1,000 x 60 months = $60,000 plus $10,500 in arrears plus an IRS debt of $1,500 plus a vehicle payment at 6% = $11,599.68 plus non-exempt assets of $3,000 for a total of $86,599.68. Divide this amount by .90 to allow for the trustee administrative costs for a grand total of $96,221.87. Then, divide the total over 60 months for a monthly payment plan of $1,603.70. Now, you have a manageable repayment plan for all your debts. After 60 months, your house will be current, the IRS will be paid, your vehicle will be paid off and all other debts may be discharged under the Chapter 13.

• Chapter 13 can Stop Repossession of your vehicles, work trucks or other asset that may be in jeopardy of being reclaimed by a creditor.
• Chapter 13 can Stop Wage Garnishments. If a creditor get a judgment against you in State Court, they have the right to garnish up to 25% of your net wages unless you qualify under state law for exemption as the head of household.
• Chapter 13 can Stop Bank Account Garnishments and, in some cases, if the money in the bank account is frozen by a creditor but has not been released, we may be able to get it back after filing Chapter 13. Once a creditor receives a judgment, they have the right to garnish your accounts. So, it is very important act quickly or your hard-earned cash may be gone forever.
• Chapter 13 can Stop Creditor Harassment. When a debtor files for protection under chapter 13 bankruptcy, an Automatic Stay is issued and creditors are no long allowed to contact you. If they do, it's a violation of the stay and they can be held liable.
• Chapter 13 can give you a fresh start and allow you to breathe again. The purpose of Chapter 13 is to reorganize and condense all your debts into one monthly payment. Typically, this payment only pays the debts that are necessary to keep a roof over your head and the vehicles used to get you to and from work. All remaining (unnecessary) debts, credit cards, medical and hospital bills, deficiency judgments on repossessed vehicles or houses, bad debts, signature loans, etc. are all paid little to nothing until the plan is completed. At that time, those debts are usually discharged.

When you file for protection under Chapter 13 Bankruptcy, a protective umbrella called an Automatic Stay is issued. Once the stay in place, creditors are forbidden to contact you about the debt. Should they do so, it is a direct violation of the court-ordered stay. If the actions are willful or if damages are caused by the violation, the creditor can be held liable.

Can I Strip My Second and Third Mortgages?

Chapter 13 Bankruptcy will allow a debtor to strip a subordinate mortgage if the value of the house is less than the superior mortgage. This means subordinate mortgages don't have to be paid and no longer have a lien against your home. Example: Present Value of House is $150,000, First Mortgage amount of $160,000 and a Second Mortgage amount of $75,000. This is a perfect example of an over-encumbered house that would be eligible for a lien strip in a Chapter 13 Bankruptcy. Lien strips can only be done in Chapter 13, not Chapter 7.

What happens to the second and third mortgage after they have been stripped?

They become unsecured debt along with all of your other credit cards, medical bills, repossessions, etc. These debts are only paid if you can afford to repay them. In most cases, the unsecured creditors get paid very little, but that will depend on your income level and necessary living expenses.

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