There are two main types of consumer bankruptcy cases, a Chapter 7 and a Chapter 13. A Chapter 7 is the more preferred chapter to file, because it is faster and allows you to eliminate all of your unsecured debt. And let’s face it, unsecured debt like high rate credit cards, is the reason most people need to file bankruptcy. When credit card balances spiral out of control, it is not long before you are simply spinning your wheels and making no real headway with getting the debt paid in full. The other type of consumer bankruptcy is a Chapter 13. A Chapter 13 can last up to 5 years, and during that time you will be required to pay back a portion of your unsecured debt.
The biggest way a Chapter 13 bankruptcy is different from a Chapter 7 is not only that it takes longer, but that you have to file a plan of repayment for your debts. The three key components to a Chapter 13 Plan include:
● A provision for how you propose to repay your mortgage debt, and how you will get caught up on the past due payments. You will need to know how much you are in arrears, and put that amount in the plan with a proposed monthly payment amount to pay off the back due balance. You will also propose an amount for your regular monthly payment, and then pay both of these sums to the Trustee every month so he or she can distribute the payments to your mortgage holder.
● A provision for how you intend to repay your auto loan and for this provision you are allowed to propose to pay only what the car is worth rather than what is owed. It is common knowledge that cars depreciate rapidly, and once you drive off the lot you are in a vehicle that is worth less than what you owe. Chapter 13 gives you the chance to pay what the car is worth instead of what is owed on the note, and this gives you the chance to save a lot of money.
● A provision for what percent of your unsecured debt will be repaid. This is the purpose of a Chapter 13, at least in the eyes of Congress. In 2005 the Bankruptcy Code was drastically overhauled, and one of the main reasons was to ensure unsecured creditors would not lose out on their entire debt when cases got filed. So, if you are in a Chapter 13, you are having to repay at least part of your unsecured debt and your Chapter 13 Plan will provide what percentage of that debt is going to be repaid; even if it just 1 or 2%.
Once you have proposed a Chapter 13 Plan, your creditors will be given time to object to how you are proposing to repay their debt. Once all of those objections are resolved, the Court will confirm the Plan. You will be required to make a monthly plan payment to the Chapter 13 Trustee, and the Trustee will send payments to your creditors. In this way a Chapter 13 is sort of like a debt consolidation, because you are making one payment per month to cover all of your debts.
For help with bankruptcy, contact us at www.DsouzaLegalGroup.com. We will help by looking at your case and letting you know your options. We work with you to come up with solutions that make sense and fit the facts of your case.