Bankruptcy Blog

Chapter 13 – the Swiss Army Knife of Bankruptcy

                Chapter 13 of the United States Bankruptcy Code is a do-it-all tool. I refer to it as such for a number of reasons: 1) Everyone qualifies to file, (2) you can choose to keep or surrender your home(s), (3) you can choose to keep or surrender your vehicle(s), and (4) it is comprehensive when it comes to clearing up your debts.

Everyone Qualifies

                When I say that everyone qualifies, I mean there is no income discrimination when it comes to determining who can file. You could be a business-owner making $1M/year, or a disabled worker making $733/mo in social security benefits. Both are equally permitted to file. My old boss was famous for saying, “everyone can file a chapter 13.”

Keep or Surrender your Home; Your Choice

               A chapter 13 bankruptcy is a flexible tool you can mold to either keep or surrender your home. Many times a bankruptcy is spawned by a temporary decrease in income. Maybe during that temporary decrease in income you fell behind on your mortgage payments and the mortgage wants to foreclose. But now your income has increased again and you can once again afford your home. Even during this tumultuous time of a foreclosure proceeding, a chapter 13 bankruptcy puts the future of your home in your hands. The decision to stay or walk away from your house is yours.

               When you file the chapter 13 and you want to KEEP your house, you can design the repayment plan to (1) pay the ongoing mortgage payment, and (2) catch-up on the mortgage arrears. When the chapter 13 is completed, the mortgage company is required to deem you CURRENT on the mortgage payments, and you simply continue the regular mortgage payment going forward.

               When you file the chapter 13 and you want to SURRENDER your house, you simply design the repayment plan to (1) surrender the house to the bank, and (2) get out from under the overly burdensome obligation of your current monthly mortgage payment.

Keep, Surrender, and Even Recover Your Vehicle From Repossession

             When you file a chapter 13 bankruptcy, you have the ability to customize your repayment plan to do anything with your financed vehicle. If you want to keep the car, but the payments are too high, a chapter 13 can keep the car and lower the payments. Even if the car has been repossessed, as long as you file your chapter 13 within a certain amount of time, you can recover the car from a repossession! If the car is failing, is a money-pit, or is otherwise on its last leg, you can walk away from it and start fresh.

Get A Fresh Start By Consolidating All Your Debts

               A chapter 13 bankruptcy consolidates all your debts into a single monthly payment. The chapter 13 payment plan includes your car (you will no longer have a car payment), medical bills, credit cards, payday loans, student loans, taxes, etc. Compare this with a chapter 7, in which you must continue to pay your monthly car payment if you want to keep it, you must deal with the IRS going-forward, and you still need to wrestle with student loans (not that a chapter 7 is bad, but in some instances it just isn’t as comprehensive as a chapter 13).

               You come out the other side of the chapter 13 owning your car free and clear, the principal of your tax debts will have been paid, and you will otherwise be debt free with the exception of student loans (and in certain circumstances you can even design the chapter 13 to repay all your student loan debts!). A completed chapter 13 leaves you in an amazing position to have an exciting future.

Debt Free Future

               It’s exciting to think that there is a tool available to us citizens of the United States, that we have the ability to tailor to our own needs and desires, that will clean up a history of debts, and get us back on track to a bright, exciting, successful, stress-free, debt-free future. That tool is found in Chapter 13 of the United States Bankruptcy Code.

Lucas Ruffing