Chapter 13 bankruptcy offers debt relief to those who are deeply in debt and behind in their payments on their mortgage but want to keep their home. Chapter 13 is called a reorganization. Additionally, some individuals or families do not qualify for a Chapter 7 bankruptcy, so must look at Chapter 13 as an additional bankruptcy option for them. If you are in this situation, you can file a Chapter 13 petition with the bankruptcy court and stop all collection action. This gives you the time you need to get your financial situation in order with Chapter 13 plans lasting up to 5 years.
There are several requirements you must meet. First, you must receive credit counseling from an organization approved by the court before you file your petition. Your tax returns for the previous four years must have been filed. Most importantly, you must show the court you have enough income to comply with your proposed reorganization plan.
Your reorganization plan must show how you will make your Chapter 13 plan payments over a three to five year period of time. You pay the trustee a monthly payment and the trustee then provides your creditors with the amount they are entitled to. You must have enough income to meet your obligations under the reorganization plan as well as to stay up-to-date on your current bills.
Secured debts, other than mortgages, are paid in full by the end of your payment plan. You may also use the full 5 years to catch up on any mortgage amount you are behind on. The debtor must also pay all alimony and child support and any wages you may owe to employees. The amount for which you are in arrears at the time you file your petition will be lumped together in your repayment plan.
If you comply with all the requirements of your reorganization plan, at the end of the repayment period some of your unsecured debt will be discharged.
Bankruptcy laws are somewhat complicated and vary slightly between states. An experienced bankruptcy attorney will work with you to determine the best approach for your particular situation.