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Chapter 13 bankruptcy

Filing Bankruptcy

  Adjustment of Debts of an Individual with Regular Income: where the court essentially runs a debt consolidation plan for you. You will make one payment a month to a bankruptcy trustee, and s/he will distribute that money to the creditors according to a plan that you have proposed and the court has confirmed.

A special feature of a Chapter 13 is a "cram down." If you owe more on a piece of personal property (anything but real estate really) than it is worth, you may choose to pay back only what you owe on it. Again, there are some exceptions, and more information on that can be found at this link.

We should note that in a Chapter 13, there is a "presumptive interest rate." When someone loans you money, s/he will charge interest on that, which is extra money you pay him/her for the benefit of using his/her money, right? Well, similarly, the court has established an interest rate that is a maximum during a bankruptcy, essentially setting a ceiling. If you are being charged more than the presumptive rate, you can reduce the interest rate to that amount. There has been some debate over what that ceiling should be, and while the US Supreme Court did provide guidance on this as recently as 2010, it is up to the individual courts in each jurisdiction to decide. If you are curious, more on the US Supreme Court decision can be found here.

In a Chapter 13 bankruptcy, all secured creditors must be paid in full (except for long-term debt such as mortgages and some car loans) as well as any other creditors deemed “priority”. The unsecured creditors will receive some portion--or perhaps none--of the money you owe them based on the plan.

Bankruptcy, even though it is federal law, varies to some extent from location to location. This is because judges in each court district have interpreted the laws. Some of these interpretations differ from others, so what you may be allowed to do in one state in the US may not be allowed in another.  

 Tips for Going Through Chapter 13 Bankruptcy

  • Complete Bankruptcy Paperwork Truthfully. When you complete your Chapter 13 petition and schedules, make sure to disclose all of your income, expenses, assets, and liabilities accurately. ...
  • Propose an Affordable Repayment Plan. ...
  • Stick to Your Budget. ...
  • Understand Circumstances Can Change. ...
  • Provide All Required Documentation.