What is Chapter 13 Bankruptcy Protection?

What is Chapter 13 Bankruptcy Protection?

What is Chapter 13 Bankruptcy Protection?

The United States Code sets forth the laws governing various types of relief for bankruptcy in the United States. 

Chapter 13 of the United States Bankruptcy Code provides an individual with the opportunity to propose a plan of reorganization to reorganize their financial affairs under the protection of the bankruptcy court.

The purpose of Chapter 13 is to enable a person with a regular source of income to propose a Chapter 13 plan that caters to creditors of its various classes. 

Under Chapter 13, the Bankruptcy Court has the power to approve the Chapter 13 plan, as long as it does not meet the statutory requirements under Chapter 13.  

Chapter 13 plans are usually three to five years old and cannot exceed five years.  

Chapter 13 is contrary to the purpose of Chapter 7, which does not provide for a plan for restructuring, but for the discharge of certain debts and the liquidation of non-exempt assets.

A Chapter 13 plan can be seen as debt consolidation, but a Chapter 13 allows a person to get a lot more than they would like to consolidate their unsecured debt, such as credit cards and personal loans.

The Chapter 13 scheme can provide for four general categories of loans:

Priority claims.

Secured claims.

Priority unsecured claims 

General unsecured claims. 

Chapter 13 plans are often used to fix dues on a mortgage, avoid "underwater" junior mortgages or other liabilities, pay taxes over time, or partially pay off general unsecured debt.

Do it  In recent years, some bankruptcy courts have allowed Chapter 13 to be used as a platform to expedite a mortgage modification application.

How do I save my house?  Using Bankruptcy Protection (Chapter 13)

Bankruptcy protection is often used to prevent foreclosure and to give debtors the opportunity to restructure mortgage arrears at cheaper repayment terms.

When debtors fall behind their mortgages, banks typically insist on all past outstanding mortgage repayments due, or repayments over a very brief window of time - two to three months. 

This financial forecast is usually impossible for the debtor who wants to save his home.

The bankruptcy option is a Chapter 13 bankruptcy. 

Chapter 13 of the United States Bankruptcy Code gives debtors an opportunity to restructure the payment of mortgage arrears over a period of three (3) to five (5) years. 

Do you have to pay back chapter 13?

This makes it easier for the debtor to catch the previous due to cheaper mortgage payments.

Chapter 13 bankruptcy is commonly referred to as the "salary earner" scheme.  

The debtor is required to prove in bankruptcy court that he or she has regular recurring income or fixed wages to manage the payment of a nominal household budget and sufficient surplus income to the debtor to pay the outstanding balance for the mortgage term  Enables no more than five (5 years).

Bankruptcy Chapter 13 payments

In some instances, the mortgage arrears must be paid back along with interest.  

However, it depends on the provisions set out in the loan documents that govern the debtor's debt.

Chapter 13 enables debtors to restructure escrow advances made by the bank.

If debtor banks make advanced payments toward real estate taxes, property insurance, etc., those advances can be repaid over a Chapter 13 plan period, not more than five (5) years.

As an example, assume that the debtor's mortgage payment is $ 1,200.00 per month and the debtor lags behind 24 months on his mortgage payment, and the mortgage's outstanding total is $ 28,800.

Debt Bank initiated foreclosure action and the bank is ready to auction the property.

Upon the filing of a Chapter 13 bankruptcy, all debt collection activity of creditors must cease, including the bank's mortgage foreclosure.

The debtor can now plan to repay the mortgage arrears on a payment plan that works within the debtor's budget.

Upon entering Chapter 13 bankruptcy, the debtor must remain current on all of its monthly bills, which are past the Chapter 13 filing date.

So, the debtor's income should be sufficient to pay his normal living expenses (mortgage, utilities, food, insurance, auto payments, medical expenses, etc.) and, moreover, sufficient surplus to pay Chapter 13  Should have income.

Plan payment ie mortgage arrears.  This means that the debtor must have an additional income of at least $ 480.00 per month and beyond its ordinary living expenses to pay the mortgage arrears over the next five (5) years.

If it is affordable, the borrower can save his house under the Chapter 13 scheme.

The bankrupt court will also require the debtor to make some repayments towards the unsecured creditors.

Most courts require at least 20% of unsecured debtor repayments of outstanding unsecured claims. 

So in addition to the repayment of the mortgage arrears, the debtor should be able to bear the payment of dividends to the unsecured creditors.

In our example, suppose the debtor has $ 20,000 in credit card debt.

The bankruptcy court would have expected our debtor to pay at least $ 2,000.00 for unsecured credit card claims not exceeding five (5 years).  

So, the debtor's income should be sufficient to pay his ordinary living expenses, mortgage arrears at the rate of $ 480.00 per month plus dividends to general unsecured creditors of $ 33.33 per month.

So as long as the debtor can bear the expenses of his ordinary living and the payment of the Chapter 13 plan, he will be able to save his home under the protection protected under Chapter 13 of the Bankruptcy Code of the United States.

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