Chapter 13 Individual Debt Adjustment


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Chapter 13 Bankruptcy

Chapter 13 of the Bankruptcy Code is designed for individuals with “regular income” with certain debt limitations, $336,900 in unsecured debt and $1,010,650 in secured debt.  With the 2005 amendments to the bankruptcy code, Congress attempted to steer more debtors towards chapter 13.  The means test will force most homeowners into chapter 13 in order to repay a portion of their unsecured indebtedness.

In a chapter 13 bankruptcy case, the debtor files schedules and statements with the court.  However, unlike a chapter 11 case, the debtor files its plan upon the filing of the bankruptcy case or within 15 days thereafter and usually commences payments within thirty (30) days.  Also, unlike in chapter 7 or 11 cases, so long as the debtor provides for the payment of a consumer debt through his or her plan, the automatic stay protects any codebtor from any suit or collection on that debt.

The Chapter 13 plan must treat secured and unsecured creditors  in accordance with  various provisions of the bankruptcy code.  Depending on the circumstances, the debtor’s chapter 13 plan may be for a period of three years or five years, at the most.  Generally, the debtor is granted a discharge  upon completion of the payments under the plan.  This discharge includes some debts that are otherwise nondischargeable in a chapter 7 case.

Chapter 13 primarily benefits debtors who are delinquent on their mortgage payments or who are in foreclosure, automobile payments and  on taxes.  For example, where the debtor is delinquent on mortgage payments or in a foreclosure proceeding, so long as the debtor files for bankruptcy before a judicial sale of the property, the debtor is able to stretch-out the delinquency over the period in the chapter 13 plan while continuing to make his or her current mortgage payments.  Also, depending on a debtor’s particular circumstances, chapter 13 can be a vehicle to refinance an adjustable rate mortgage into a fixed rate mortgage or restructure junior liens depending on whether the property is the debtor's homestead and depending the value of the property.

With respect to taxes, the debtor is benefitted from the ability to prevent a seizure or levy.  Chapter 13 enables a debtor to freeze the accrual of certain interest and penalties on the taxes and stretch-out the obligation over the life of the chapter 13 plan. 

Another benefit is for individuals who have valuable non-exempt property they wish to retain.  Whereas such property would have to be surrendered to a trustee in a chapter 7 case, if the debtor distributes at least as much as the value of the property he or she wishes to retain over the life of the chapter 13 plan to unsecured creditors, along with any other required payments, the debtor  may retain the property and still receive a discharge upon the completion of the plan payments.


The Law Offices Of Nicholas B Bangos assists clients with Bankruptcy / Insolvency in Florida area including Coral Gables, Miami Dade and Broward County.


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