Chapter 13 Bankruptcy

For example, lets assume your mortgage requires you to pay $2,000 a month and you are around six months ($12,000) behind on your mortgage.  Chapter 13 gives you up to five years to catch up on your mortgage.  Your bankruptcy plan would likely be approved if it provided for the regular mortgage payment and an extra $200 a month for the mortgage arrears ($200 x 60 months = $12,000) plus fees.  The trustee collects a 10% fee and some of your attorney fees are usually paid through the plan. 

If the fees were $275 in the above example, you would pay $2,475 a month through your plan for five years.  You would be current on your mortgage at the end of that five year bankruptcy.   During that five year period, your mortgage company would be prohibited from selling your house as long as you make your plan payments and otherwise remain current on your loan. 

Chapter 13 is much more complex than Chapter 7 and almost always requires an increased plan payment compared to your mortgage payment.   There are many little things that can cause your plan to be rejected.   You must also qualify for Chapter 13.  Professional help is a near certainty to make a Chapter 13 case work.

You must also pay certain debts during your Chapter 13 case.   However, you do not necessarily have to pay all of your debt.  You only have to pay your credit card debt and other general unsecured debt if you can afford to do so.   You must pay for the secured debt to keep the property securing the debt.  With the secured debt, you are sometimes allowed to reorganize the debt as long as your plan complies with all of the Chapter 13 Bankruptcy laws.

For example, you may be able to extend your car loan up to five years and reduce your monthly payment.  You can often reorganize the debt owed to your first mortgage so that you catch up on the mortgage over a five year period.  You can also get rid of part or all of a second mortgage in some cases.

As you can see from the above discussion, Chapter 13 bankruptcy is a complex process.  There are many other bankruptcy laws not specifically mentioned above.  It is an important tool for some people, and can help solve serious financial problems.

Bankruptcy provides you with a fresh start.  Part of your fresh start may be to get as much time as possible to save your house.  As you can see, Chapter 13 almost always increases your house payment.  However, it does stop the bank from foreclosing for up to five years.