A Chapter 13 bankruptcy is known as a ‘wage earners’ bankruptcy. Candidates for Chapter 13 should have regular and sustainable income.
A Chapter 13 bankruptcy is a court structured repayment plan, subject to the court’s approval, whereby through monthly payments to the trustee for 3 to 5 years, a certain percentage of an individual’s debts are paid back. A Chapter 13 bankruptcy is best suited for individuals whose income is above the allowed limit for a Chapter 7 bankruptcy, for individuals who are behind on their mortgage payments, for those whose property values exceed their states exemptions, or for individuals who have a wholly unsecured second mortgage that would be eligible to be removed in a Chapter 13.
To qualify for a Chapter 13 bankruptcy you must show the court that you can make all of your necessary household expenses, including any mortgage or vehicle loan payments, in addition to your monthly Chapter 13 plan payment to the court.
A Chapter 13 bankruptcy is a very stringent and difficult process to endure, as the court will require an individual to dedicate all of their disposable monthly income to their monthly plan payments which must consistently be made on time for the entire length of the plan. However, for the right candidates, the benefits of this chapter of bankruptcy can outweigh the difficulties.
One of these benefits is that in a Chapter 13 bankruptcy, in addition to a discharge of your unsecured debts, upon successful completion of all plan payments, a wholly unsecured junior lien can be stripped from a debtor’s primary residence. For example, if your home is worth $300,000 and you have a first deed of trust with a current balance of $350,000, and a second deed of trust with a current balance of $50,000 – that second mortgage is wholly unsecured because your property has no equity above the value of the senior lien. Therefore, this second mortgage would be eligible to be stripped in a Chapter 13 bankruptcy.
A Chapter 13 bankruptcy is a complex process which requires a thorough analysis of your unique financial situation. Contact The Law Offices of Thomas Kerns McKnight today and speak with one of our experienced attorneys to see if this chapter of bankruptcy best suits your financial needs.
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