CHAPTER 13 BANKRUPTCY
Chapter 13 is frequently used to save homes. It will automatically stop foreclosure and collection lawsuits. It can also be used to pay back and/or discharge unsecured debts like credit cards.
In Chapter 13, a debtor must propose a monthly repayment plan with a 36 to 60 month term. The duration of the plan is determined by reference to the new Statement of Current Monthly Income form 22C that was created by the Bankruptcy Reform Act in 2005. As a general rule, debtors whose income exceeds the state median level must repay their debts over a five-year period (60 months). Debtors who fall below the state median can propose a 36 month plan. For the typical homeowner, a Chapter 13 plan will propose to repay all of the mortgage arrears over the life of the plan in order to reinstate the mortgage. If the payments under the plan are all made and the debtor is successful, at the conclusion of the plan the loan will be fully reinstated and current as though it had never fallen behind. Because a Chapter 13 plan only includes prepetition mortgage arrears, the debtor is obligated to continue to make the current monthly mortgage payments directly to the lender during the case. While lenders will almost always return monthly payments that made prior to a bankruptcy filing — because the loan has been fully accelerated as a result of the default — once a Chapter 13 case is started the lender is required to accept monthly payments again. Many mortgage lenders have a separate department to handle these payments. The plan must also repay other debts such as car loan or lease debts, credit cards, medical bills, student loans, taxes, and monies owed for other reasons. In some cases, the debtor may be allowed to pay less than 100% to unsecured creditors such as credit cards, depending on whether or not the debtor has equity in his property and surplus income. Preparation and calculation of a Chapter 13 plan should be handled by and its variants bankruptcy lawyer in order to give you the best possible chance of confirming the plan. Once your lawyer prepares the plan, you acknowledge your approval by signing it and is then filed with the court electronically. Plans may be changed for one reason or another at a later time by filing an amendment. Debtors are required to begin making their monthly plan payments to their Chapter 13 trustee within 30 days after their case is filed on a monthly basis. This means that there will be several payments already made before the debtor attends the confirmation hearing to request approval of the plan.