Chapter 13 Bankruptcy
Chapter 13 bankruptcy is called "reorganization" because it reorganizes your debt repayment. It is required of those who make more than median income without offsetting allowable expenses, and requires you enter into a repayment plan whereby you pay your creditors to the extent you are able for a period of up to five years, and if you still owe them anything after that time, the balance owed is discharged at the end of the repayment period.
There are tiers of repayment in bankruptcy whereby priority debts, such as taxes and other priority debts, are paid first. Then come the secured debts such as mortgages, vehicle loans, and the like. Finally, come the unsecured creditors such as medical debt and credit card debt. When you make your monthly repayment, payments are prioritized in this order. The amount you pay is determined by your disposable income. What is disposable income? The amount left over after payment of taxes, health and life insurance premiums, and other allowable necessities as determined by a Means Test that was designed to determine whether you have the means to repay any of your debt. Some of the expenses are fixed, such as food and clothing allowances, but other expenses may or may not apply to you, such as the cost of private school for children. So the Means Test is designed to take your gross income and then deduct from it all the necessities of life to determine what is left thereafter. If nothing is left thereafter, you might not qualify to file a Chapter 13 bankruptcy at all, as you must have the means to fund a repayment plan in order to file a chapter 13 case.
Chapter 13 has advantages that chapter 7 does not. For example, say you have two mortgages on your house, one that is secured by the value of the house, and another that is not secured, because the value of your home is the same or less than what is owed on the first mortgage. By filing a chapter 13 bankruptcy, you can classify the second mortgage as an unsecured debt and "strip" this lien from your home, i.e. not have to pay it anymore than you would pay other unsecured creditors, which could be as little as 1% of the balance owed.
To determine whether you qualify for a Chapter 13 bankruptcy or whether a Chapter 7 is best for your situation, call a competent bankruptcy attorney today. Higgins Law, LLC, has filed literally thousands of personal bankruptcies in chapter 7 and chapter 13, and has many, many satisfied clients. Call today: (863) 325-0343.