Chapter 13

 
A Chapter 13 bankruptcy is also called a wage earner's plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. During this time the law forbids creditors from starting or continuing collection efforts. A Chapter 13 is designed to restructure and reorganize your debts into one affordable monthly payment. The payment is affordable because it is calculated based off the amount of disposable income you have. Disposable income is the income you have left over after subtracting the amount of your total income from the amount of your reasonable living expenses. The plan need not pay unsecured claims in full as long it provides that the debtor will pay all projected "disposable income” during the life of the plan.
 
Chapter 13 offers individuals a number of advantages over liquidation under chapter 7. Perhaps most significantly, Chapter 13 offers individuals an opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time. Another advantage of Chapter 13 is that it allows individuals to reschedule secured debts (other than a mortgage for their primary residence) and extend them over the life of the Chapter 13 plan. Doing this may lower the payments. Chapter 13 also has a special provision that protects third parties who are liable with the debtor on "consumer debts." This provision may protect co-signers. Finally, Chapter 13 acts like a consolidation loan under which the individual makes the plan payments to a Chapter 13 trustee who then distributes payments to creditors. Individuals will have no direct contact with creditors while under chapter 13 protection.
 
You can choose to either keep the collateral on a secured loan or you can surrender it. If you choose to keep the collateral, the debt will have to be paid back one of two ways. If the debt is one that is so large it cannot be paid back in the life of the plan (like a mortgage), the loan will be paid back as what is called a continuing debt. This means the loan will be brought current and paid regularly during your plan and at the end of the Chapter 13 you will simply resume paying the loan at the regular monthly rate. The other way a secured debt is paid is that it is paid in full during the life of the plan. If you are buying an automobile, for example, you would typically pay back the debt on the automobile during your Chapter 13 plan which can last up to five years. You may or may not pay back the entire balance on the automobile depending on how long you have been buying the vehicle and other factors.
 
Whether or not your unsecured creditors are paid in full in a Chapter 13 depends on how much you are able to afford to pay. Generally, bankruptcy law requires that you commit your disposable income for a minimum of 3 years or no more than 5. If there are not sufficient funds to pay the unsecured, they will receive only a percentage of what is owed them or possibly nothing at all. Again, it depends on what your income and expenses show you can afford to pay. You can go up to 5 years in a Chapter 13. As a general rule, the longer you go, the lower your monthly payment will tend to be. The amount you have to pay back to unsecured creditors and the length of your payment plan is determined by your income and expenses.
 
Let Us Show You How We Can Help
The Harris Law Firm is experienced in helping Arkansans file Chapter 13. We have over 25 years of legal experience.  Contact us at the Harris Law Firm. You can call us at 501-372-6985 or set an appointment online. We offer free consultation. There is never a fee unless you decide to file.