In a chapter 13 your debts are consolidated and reduced to one monthly payment that you can afford- based on your monthly disposable income; letting you 'catch up' on any delinquent payments, taxes etc., while keeping your property. One of the most attractive features of a Chapter 13 plan is that it allows you to keep your home or car and gives you some much needed 'breathing room' to catch up the delinquent payments over a period of 3-5 years.

Your unsecured debts may be paid in full for as little as 1 cent on the dollar - or 1%percent of what you actually owe. The remaining .99 cents is then discharged - wiped out!

You may also be able to pay only what your secured property is "really" worth - not what you actually owe on it.

The amount you can "afford" to pay to your unsecured creditors is determined by the amount of "disposable" income you and your spouse have available each month. You and your spouse are allowed to keep enough of your income to pay for all reasonable living expenses. Any "extra money" is paid to your creditors in monthly installments until the Chapter 13 Bankruptcy "Plan" is completed in 3-5 years

Chapter 13 is not available to partnerships or corporations. But a person who has a small unincorporated business may file Chapter 13.

You may file Chapter 13 if you owe (on the date of filing the petition): unsecured debts of less than $250,000 secured debts of less than $750,000.

Advantages of Chapter 13

Stops all creditors from contacting you or taking any direct action towards you to collect a debt. (they must 'call' and deal with the trustee)

Halts all attempts by creditors to repossess property

Delinquent bills are paid through the Chapter 13 Plan

Creditors begin dealing with Trustee instead of you

No interest, penalty, or late charge is allowed on any unsecured debt, even on IRS taxes and student loans.

Chapter 13 provides a repayment schedule that allows you to pay off your debts over 3-5 years while allowing you to keep your exempt property . After the terms of the chapter 13 plan are completed many districts have a program to help you reestablish your credit using the new budgeting skills learned during the Plan.

Debt Priority

Different types of debts have priority over other debts, or a 'pecking order, determining which debts are paid in what order and how much -  meaning that they are paid first, second, and on down the priority list.

Secured debts are paid first and are those debts secured by collateral that can be repossessed if the debt is not paid, such as a car loan or mortgage payment. Home Loans

Priority debts are paid second, from the money 'left over' after your secured debts are paid and include taxes.

Unsecured debts which comprise the largest share of most consumer debts are paid last out of the money 'left over' after secured and priority debts are paid. Unsecured debts may be paid as little as 1 cent for every dollar you actually owe; or 1 percent of the debt.

Delinquent Payments on Secured Property Debts

Delinquent payments on secured debts such as on a mortgage or car can be reorganized under Chapter 13 and paid out over the length of the Plan which can be as long as 5 years. This is one of Chapter 13's most attractive features. You can catch up delinquent payments in small monthly installments and keep your property. Home Loans

Real World Example:

David owes 2 mortgage payments of $450 each = $900 and 3 car payments of $300 each = $900, for a total of $1,800 in delinquent payments, and $30,000 in unsecured credit card, department store, and medical bills. He is facing foreclosure on his home and his car is about to be repossessed - and soon. Creditors are calling him at home, at work, and they're even calling his relatives and friends he listed years ago as personal references on his original loan application.

Real World Example

Income tax debt is a special class referred to as priority unsecured debt, meaning that even though the debt is unsecured, the IRS is at the head of the line of unsecured creditors and will be paid before 'regular' unsecured creditors - much like secured creditors.

There is a notable exception to the basic rule that 'the government gets paid first' (or almost first). Generally, income taxes which are more than 3 years old (due more than 3 years) are considered in the same class as all other unsecured debts and are paid on the same pro rata basis as other unsecured creditors. The pro rata amount may be as little as 1 cent on the dollar. (SeeTax Relief)

Property (Ad Valorem) taxes have priority much like income taxes. The government makes every effort to ensure that they get paid first. One of the major reasons debtors choose to file a chapter 13 plan is to save their home and immediately stop the horrendous interest rate generally charged on delinquent property taxes from eating up the value of their home. The plan allows you to 'catch up' delinquent property taxes in small monthly payments much like delinquent mortgage payments.