Chapter 13 bankruptcy is a “reorganization” for an individual over a period of time. It does not mean that you are required to pay all of your debts in full. Often is the case that an individual only pays pennies on-the-dollar to creditors.
Upon “Confirmation” (think approval) of the reorganization “Plan” the Court issues an Order binding all parties (creditors and the debtor). Therefore, all parties are bound by the terms of the Plan. Thus, creditors don’t get to choose if they are going to be required to be bound by the terms of the Plan.
Upon completion of the Plan, all unpaid balances of dischargeable debts are discharged. Chapter 13 even discharges some debts that are not dischargeable in a Chapter 7 case.
Further, Chapter 13 allows an individual to pay back, over time, debts that the individual cannot bring current or pay in full. For example, if you owe arrears on your mortgage you may be able to pay what you are behind over time and avoid foreclosure and keep your home. More importantly, the filing of a Chapter 13 will immediately stop the foreclosure process.
Likewise, if an individual owes back child support or taxes, the filing of a Chapter 13 can cure those arrears.
Large numbers of people file Chapter 13’s that are behind on mortgage payments and/or car payments.
Chapter 13 also allows the “stripping” of a 2nd mortgage or other liens on property whose value is less than the lien at the time the case is filed. An example would be that if you owe $250,000 on your first mortgage and $50,000 on your second, but your home is worth less than the $250,000 owing on your first mortgage, then you could “strip” the 2nd mortgage.
The filing of a Chapter 13 case may also allow an asset to be “valued.” For example, if you owe $30,000 for a car that is only worth $18,000, you may only be required to pay $18,000 for the car—the same may apply to a Mobile Home!
Individuals also file Chapter 13 when they have unprotected assets that creditors could take from them if it were to obtain a Judgment (think equity in a home, a car that is paid for or money in the bank).
There are many reasons why a Chapter 13 bankruptcy may be the best option for an individual to choose. That is why I encourage you to schedule an appointment with us to see if it is right for you.