In a Chapter 13 bankruptcy you file a “plan” showing how you will pay off some of your past-due and current debts over three to five years. The most important thing about a Chapter 13 case is that it will allow you to keep your valuable property–especially your home and car–which might otherwise be lost, so long as you can make the payments. In most cases, these payments will usually be as much as your regular monthly payments on your mortgage or car loan, with some extra payment to get caught up on the amount you have fallen behind.
A couple of good reasons to consider filing a Chapter 13, even if you are otherwise eligible to file a Chapter 7, is that you may be able to:
“Strip Off” a second mortgage. This has the legal effect of changing the second mortgage from a secured debt to an unsecured debt. When you complete your Chapter 13 Plan, this debt would be completely discharged.
“Cram Down” a car loan. It’s pretty common nowadays that people owe more on their car than the value of the car. Car dealers call this being “under water” or “upside down”. In a Chapter 13, if you have owned the car long enough, (more than 910 days), you may be able to pay the lender the (lower) value of the car, rather than the (higher) amount owed.
You should consider filing a Chapter 13 case if you:
- Aren’t eligible to file a Chapter 7;
- Own your home and are in danger of losing it because of money problems;
- Are behind on mortgage or car payments, but can catch up if given some time;
- Have valuable property which isn’t exempt, but you can afford to pay your creditors from your income over time.
- Would like to eliminate that second mortgage, or
- “Cram down” that old car loan.
Filing a Chapter 13 can give you the opportunity to stop the constant creditor harassment and give you a plan to put your financial house in order.