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Chapter 13 Reorganization |
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General Rule. A Chapter 13 filing is a plan of reorganization where you use 3 to 5 years to “catch up” on your delinquent home mortgage or car payments (if you choose to) and pay your unsecured bills (such as credit card) based on your ability to pay. At the end of your plan, the remaining unsecured debt is eliminated. And any discharged debt is not taxable income, which it would be if you discharged the debt outside of bankruptcy and had exempt assets. |
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A Chapter 13 filing is a plan of reorganization where you can catch up on your arrears (delinquent payments) on secured property such as home mortgages and car loans. And you pay the balance of your bills based on your ability to pay, over a 3 to 5 year period.
At the end of the 3 to 5 year plan, the balance owed on your unsecured debts (credit card bills, etc.) is discharged (eliminated.)
And you avoid having to pay income tax on the relief of debt. Outside of bankruptcy, you will likely have to pay income tax on the forgiveness of debt, unless you are insolvent (taking into account all of your exempt assets.)
Your first Chapter 13 payment is due within 30 days after the plan is filed. Thereafter, you must make a monthly payment to the Chapter 13 trustee over the life of the 3 to 5 year plan.
If your monthly household income is less than the median income in Colorado for a family of your size, then you can do either a Chapter 7 or a Chapter 13 filing.
If your monthly household income is above the median amount and you have disposable income after the payment of your mortgage, car payments, and other basic expenses, then you must pay the excess disposable income to the trustee for the benefit of your unsecured creditors (such as credit card companies.)
Who Should File a Chapter 13?
1. You are behind on your mortgage payments or car loan, and you need to make up the missed payments over a 3 to 5 year period.
2. You have unpaid taxes which are not dischargeable;
3. You want to take advantage of the “super” discharge in Chapter 13 to discharge some debts which are not dischargeable in Chapter 7, such as some Domestic Support Obligations and some home and car liens which can be stripped-down or stripped-off.
4. You have a steady income and some level of disposable income;
5. Your unsecured debts (credit cards, etc.) do not exceed $336,900;
6. Your secured debts (home mortgage, car loan) do not exceed $1,010,650; and
7. You can file as an individual (or jointly as a married couple), not a business.
See the page on saving your home with bankrutpcy for more benefits of a Chapter 13 filing.
A repeat of the earlier Chapter 13 example iis repeated here below.
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An example of a Chapter 13 plan: Here, in a Chapter 13 plan, the homeowner has a reduced monthly payment of about $1,648.00 per month. And the home is safe. This includes the payment to “catch up” on the mortgage arrears. In this case, we have turned the car back to the lender or lessor. |
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