Chapter 13 Bankruptcy Information
When a chapter 7 filing would not be advisable, you may want to file under chapter 13. You do not have to give up your non-exempt property as in 7, but you must pay at least some of your debt. If you are considering 13 only to preserve this property, the amount you will have to pay is about equal to the value of the non-exempt equity you are keeping, or the amount of debt you have, whichever is less. You will have up to five years to pay, usually in monthly installments. The payments are made to the trustee, under a chapter 13 “plan” which I will prepare for you.
The main purpose of Chapter 13 is to allow you to catch up on debt you must pay to keep your property. If you are behind on your mortgage or car loan, chapter 13 can give you up to five years to pay the arrears. You will also have to make the payments that are due on these loans after you file. If your home mortgage is in foreclosure, chapter 13 will stop the proceeding at any stage, even on the day before the sale. Filing under any chapter will stop any civil legal proceeding brought for the collection of a debt. After that, where a creditor is suing to take property you have pledged to cover a debt (usually mortgages and car loans), you have to arrange to make payments under your chapter 13 plan, or the lawsuit can continue. Suits to collect unsecured debt, like for credit cards, will usually be stopped for good.
When you stop a foreclosure as described above, you have a chance to bargain with the lender for a modification of your mortgage, or to be allowed to do a “short sale”. In a short sale, the lender allows you to cancel the mortgage and sell the house for whatever you can get for it.
The Southern District Bankruptcy Court, covering Rockland, Orange, Westchester, Dutchess, Ulster, Putnam and Sullivan Counties, Manhattan and the Bronx, has a program under which mortgage lenders can be required to negotiate with you. This is called the “Loss Mitigation Program.” Of course, you can ask a lender to negotiate a modification or sale with you outside of bankruptcy, but it will be voluntary on their part.
In a Chapter 13 case you also have the benefit of the five years a bankruptcy plan allows for you to take control of your financial situation. If your circumstances allow, through increased income or reduced expenses, you will be able to discontinue your bankruptcy case and deal with your creditors directly.
In appropriate circumstances a Chapter 7 case can be converted to one under Chapter 13, and vice-versa.
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