Chapter 13 Bankruptcy

Chapter 13 Bankruptcy

Generally, a chapter 13 bankruptcy is for people who have valuable assets they don't want to lose, or who make too much money to qualify for a chapter 7. A person may also file a chapter 13 bankruptcy to repay arrears on a mortgage and keep his or her house.

A chapter 13 bankruptcy, unlike a chapter 7, is not a "liquidation" bankruptcy and therefore the debtor does not lose any assets. In some cases the debtor need only pay back a small percentage of his or her debt if the plan is proposed in good faith. Another reason to file a chapter 13 bankruptcy is to "cram down" a second mortgage on a house. If your house worth less than what you owe on the first mortgage the second mortgage is considered unsecured and therefore can be listed along with the unsecured debt. The debtor would only have to pay back a percentage of the second mortgage, along with a percent of the other unsecured debt. At the end of the chapter 13 bankruptcy the second mortgage would be wiped out and the debtor would only owe what remains on the first mortgage.

Under a chapter 13, the debtor proposes a plan to repay all or some of his or her debts over a period of several years. Since the plan will call for monthly payments to a bankruptcy trustee, a chapter 13 bankruptcy is only appropriate for people who have a regular source of income and can make an additional payment on a monthly basis.


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