Chapter 13 Bankruptcy: the Top Five Reasons

by Douglas Jacobs, Esq.

November 11, 2012

Chapter 13 is a type of bankruptcy for consumers that allows them to make payments on certain debts, restructure others, and discharge some (or all) unsecured, non-priority obligations.  The leading 5 reasons to file such a bankruptcy are:

1.    Your house is in foreclosure and you need to stop that process. The magic of a Chapter 13 bankruptcy is that a mortgage or loan company can’t go forward with a foreclosure of your home if you have proposed a plan to get them caught up.  Thus, if you are $10,000 behind in your house payments, but can repay that amount over 3 to 5 years, the foreclose stops!   See Brett Weiss’ article here.

2.    You owe the IRS and they are threatening to garnish your wages.  In a chapter 13, you can force them to take payments. Often the IRS will work with you voluntarily to pay off a tax liability.  Sometimes, however, the monthly outlays proposed by the IRS are just too large.   But in a Chapter 13 bankruptcy, you can force them to take payments if you are going to be able to cure the deficiency during the plan (3 to 5 years).   See Cathy Moran’s article here.

3.    You owe more on your first mortgage than the house is worth and you want your second mortgage or line of credit to go away.  This has can happen in a Chapter 13 if you owe more on your first mortgage then the house is worth.  See Gene Melchionne’s article here.

4.    You don’t qualify for a Chapter 7 bankruptcy but you need some relief from your debts.  BAPCPA, the bankruptcy law that went into effect in 2005, limits individuals seeking to file a chapter 7 bankruptcy to persons who qualify under the Means Test.   Thus, if you make too much money, you can’t file a Chapter 7.  See the definition here.

5.    You own personal property or real estate that isn’t worth what you owe on it, but you still want to keep it.  In a Chapter 13, often you can “cram down” the amount you are paying on a vehicle or non-residential piece of property by paying only the actual value to the lien-holder, and treating the rest of the loan as unsecured.  See Kevin Gipson’s article here.

These are the top five reasons to file a Chapter 13. Consult a good bankruptcy attorney to see if you can benefit from such a filing.

 

image credit:  EJP Photo

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Douglas Jacobs is a California bankruptcy attorney and partner in the Chico law firm of Jacobs, Anderson, Potter & Chaplin. Since 1988, Mr. Jacobs has taught Constitutional law and Debtor-Creditor/Bankruptcy law at the Cal Northern School of Law. He has served as Dean of Students since 1994. He is a frequent lecturer on the subject of consumer bankruptcy law, and has spoken at both state and national levels.

Last modified: January 6, 2013