Chapter 13 allows a person to keep property that is in danger of repossession or foreclosure. It allows you to get current on payments such as house payments, car payments, alimony payments, child support payments, and tax obligations. Chapter 13 allows you to get current over a period of 3 to 5 years, even when creditors have refused to accept any further payments (even if they have started the foreclosure, garnishment, or repossession process). Often chapter 13 can eliminate or reduce tax obligations, reduce car payments, and even eliminate second and third mortgages in certain circumstances. Moreover, the attorney’s fees necessary to file the chapter 13 can be paid over the life of your chapter 13 plan, making it very affordable to file a chapter 13 case assisted by an attorney specializing in bankruptcy. Contact us to today for a free confidential consultation — (919) 875-8773.
A common misconception about chapter 13 is that you must pay back all of your unsecured debt (e.g., credit cards, personal loans, medical bills, etc.) along with the debts secured by property you wish to keep. In the majority of chapter 13 cases unsecured creditors receive little if any distribution. When unsecured creditors are required to be paid, usually they receive only a small fraction of what they are owed. They are paid only if they choose to participate in your bankruptcy by filing a proof of claim. If a creditor does not file a proof of claim they receive no payments on their claim, and the debt owed to them is generally discharged upon the completion of the chapter 13 plan.
Distributions to unsecured creditors may be required if you are above the median income for your family size, and have very low expenses of the type that are allowed to be deducted from your income (for a complete discussion of this see our discussion of the “means test”). Distributions to unsecured creditors may also be required if there are unexempt assets (i.e., the individual has property with equity above the applicable exemption amounts), that a debtor desires to retain. In such a case the so-called “liquidation test” requires that the unsecured creditors receive the dollar amount of the unexempt property (less certain deductions) which is distributed over the length of your plan pro rata among all of the unsecured creditors.