What is Chapter 13 bankruptcy?

Prior to the bankruptcy code changes in 2005, Chapter 13 bankruptcy was one of the lesser-known chapters of bankruptcy filing. When people thought of bankruptcy, they typically thought of Chapter 7 bankruptcy. After the changes to the bankruptcy code in 2005 many debtors were pushed into Chapter 13 because of making too much money. With the changes to the code came the admission of a means test for filing bankruptcy. To qualify to file for Chapter 7 bankruptcy a debtor is required to pass a means test which takes their average household income and compares it with the median income for their state. Some individuals that made too much money would be forced into Chapter 13 bankruptcy.

In a Chapter 13 bankruptcy, the debtor and their bankruptcy attorney are required to come up with a feasible repayment plan that will last 3 to 5 years. The debts are paid by priority with secured on top and the unsecured debts like credit cards and medical bills are paid with whatever’s left over. At the end of the Chapter 13 plan the leftover balance on all unsecured debts is discharged in bankruptcy. A Chapter 13 bankruptcy is very flexible because the court understands that a lot can happen during the 3 to 5 year payment plan. This is a huge benefit for the debtor filing for bankruptcy, because it allows them to contact their bankruptcy attorney to make changes to the plan as their financial life changes.

Where Chapter 13 bankruptcy really made a name for itself was after the real estate market meltdown that began in late 2007. Many individuals that found themselves upside down on their home needed to file for bankruptcy to protect their home. Some of them did not qualify to file Chapter 7 bankruptcy and decided to file Chapter 13 in an attempt to keep the family home. This is where Chapter 13 bankruptcy really shows its muscle, in protecting real estate. As the real estate market continues to slide down the slope, many debtors are finding themselves upside down and some even have seconds and thirds against their home. When a debtor files Chapter 13, they can have their bankruptcy attorney file a motion to strip the lien off of the second and third trust deed if it is no longer secured by the value of the property. After the bankruptcy attorney does this, the debts will be considered unsecured and can be discharged in the bankruptcy filing. In today’s real estate market this is becoming an everyday occurrence. The power of filing bankruptcy under Chapter 13 shows itself when it comes to protecting real estate.

Getting answers to those tough bankruptcy questions needs to be thought of before you make a decision when it comes to your financial problems. Finding the answers to help you understand your situation more clearly can help you make an informed decision about filing bankruptcy. Take a minute to call or fill out the form to have a FREE NO OBLIGATION CONSULTATION with a bankruptcy attorney in your area.