Pay Over Time

The basic idea of a chapter 13 bankruptcy is to pay what you can over a 3 or 5 year period. Now, why would anyone want to do that if they could simply file a chapter 7 and get rid of their debt without paying anything? People generally file chapter 13s for 3 reasons: 1. They don’t qualify for a chapter 7 because they make too much money; 2. They want to discharge their 2nd mortgage; 3. They are behind one their 1st mortgage and they must keep their home.

Keeping your property

Most people who file a chapter 13 bankruptcy keep all of their property. If you have any unexempt property that you would lose if you filed a chapter 7, then you must propose a chapter 13 plan that will pay at least what your creditors would have received if you were to file a chapter 7 bankruptcy. The trustee gets 10% of whatever you put into the plan. This is why it’s always a good idea to be current on your 1st mortgage before filing the chapter 13. If you are late on your payments, then your home must be placed into your chapter 13 repayment plan. Let’s say for example you pay $2,000 a month for your mortgage. If you are late on your 1st mortgage at the time of filing then you must pay an additional $200 a month to the trustee.

Priority vs. Non Priority Debts

Few debtors pay back 100% of their debts in a chapter 13 bankruptcy. Priority debts like child support, spousal support and most taxes, must be paid in full whether you file a 7 or a 13. Credit cards, medical bills and some 2nd mortgages are not given priority in a chapter 13 and can be discharged outright.

Missing Chapter 13 payments

Once your chapter 13 bankruptcy plan is confirmed, then you pay the trustee and the trustee pays your creditors. If you don’t make your payments the trustee’s office will issue an order to show cause and put the matter in front of a judge for dismissal. In other words, you must keep current on your payments.