How It Works
The Chapter 13 plan is based on income, expenses, amounts to repay secured debt and protecting equity in your assets and repayment to unsecured creditors. Everyone’s Chapter 13 plan is different due to their individual circumstances. The Chapter 13 Trustee collects the money from your paycheck and pays it to your creditors. The Chapter 13 bankruptcy lets you set a repayment plan paying your secured creditors, such as house, car or furniture and catching up those payments that are behind while protecting your property.
The unsecured creditors, credit cards, medical bills, check advances payday loans are paid back at a percentage of the debt from 0% to 100% with interest depending on your income, expenses and equity in real and personal property.
Chapter 13 bankruptcy stops creditors from foreclosing on property or repossessing vehicles. Chapter 13 stops wage garnishments and gives you a chance to repay debts while under the protection of the Bankruptcy Court.
When you file for bankruptcy protection, the Bankruptcy Case is filed in the U.S. Bankruptcy Court. You must have a pre-bankruptcy certificate to file a bankruptcy. We help our clients with that process.
Chapter 13 plans often offer a repayment plan that is less than a debt consolidation plan offered by most credit counseling agencies. Bankruptcy also protects you from being sued on the debts being repaid under the approved plan.
Exemptions and Protections
The exemption for personal property (items that can be protected for you – for example, cash in the bank, paid for cars, jewelry and furniture) is $10,000 per person and $20,000 per married couple.
Chapter 13 will stop foreclosures and allow past due mortgage payments to be caught up over the life of the Chapter 13 plan. Chapter 13 should be filed before the date of the foreclosure to ensure proper notice to the mortgage company. Chapter 13 will also stop the IRS from garnishing your wages or selling your property. It allows you to make repayment of the tax debt while stopping the penalties and interest from running. (The Chapter 13 is NOT a dispute of the amount owed.)
Chapter 13 protects necessary property such as your house or your car. A repayment plan allows those with any regular source of income to pay back debt over a period of 3 to 5 years. This results in a drastically lower payment on secured debts, thus relieving the “cash crunch” for most people.
Federal income taxes may be paid back with no interest.
The Chapter 13 Trustee facilitates payment to the creditors. Their job is to ensure you pay your unsecured creditors as much as you can, as fast as you can. The Chapter 13 Trustee has a website for case comments and information: http://considerchapter13.org/ The Chapter 13 Trustee in Nashville offers a Financial Management Class that you schedule on the Trustee’s website at http://www.ch13nsh.com/debtored/ch13class.aspx
The Chapter 13 plan requires all disposable income go to your repayment plan —- so if you inherit money, win the lottery, or get a lawsuit, you must turn over that money to the Trustee for your creditors. Failure to pay all of your disposable income to the plan may result in dismissal of your case or conversion to a Chapter 7 and loss of the asset. Tell your lawyer if you have a possible lawsuit or inheritance. Even if you have not filed the lawsuit yet. Failure to list the possible asset may cause you to lose the asset and your discharge in bankruptcy.