|
The
Bodor Law Firm
THE
CHAPTER 13 PROGRAM
The Chapter 13 program is a
way of paying your creditors over a period of up to five
years. You must pay them over such time period at least as
much as they might have received from you had you done a
liquidation bankruptcy (a Chapter 7 Bankruptcy). The amount
you would likely pay is based upon what type of creditor is
involved and what that creditor might have received through a
Chapter 7 Bankruptcy.
For purposes of this
explanation, there are generally four types of creditors: (1)
Priority, (2)
Secured, (3)
Unsecured and (4)
mortgage arrears. These creditors are generally treated
in the following manner in a Chapter 13:
As a general rule, (1)
Priority creditors will receive a 100% of what you owe
them. For most people, priority creditors are taxing
authorities. Although you will have to pay the taxing
authorities a 100% of what you owe them, usually you will not
have to pay interest on the obligation.
(2)
Secured creditors usually include those holding a
security interest in (a) your cars or (b) household goods.
Under current law you will be able to "cram down"
the value of the collateral. This means that over the term of
the Chapter 13 program you will have to only pay the value
plus interest to the creditor at a 100%. The difference
between the value of the collateral and the obligation will be
treated as an unsecured debt and the creditor can be paid as
little as 10% of the amount involved. If you owe $12,000.00 on
a car worth only $8,000.00 you would have to pay $8,000.00 at
a 100%, plus interest, and the $4,000.00 difference, being
unsecured, might receive as little as 10%, or $400.00, over
the term of the plan.
(3)
Unsecured creditors are usually credit cards, doctor
bills and hospital bills. These creditors, being unsecured,
also may only receive 10% of what is owed.
(4)
Mortgage arrears and attorney fees (of the attorney who
filed the foreclosure) can be paid to the mortgage holder over
the term of the Chapter 13 plan. You would have to pay
interest on the arrears to the mortgage holders.
The net result of all this is
a lower monthly payment to your creditors and, since you are
paying the mortgage holder the arrears, you save your home.
And, the Chapter
13 STOPS the foreclosure and any sheriff's sales.
You have two very important
obligations, you must understand, once a Chapter 13 Plan is
approved: (1) to
pay directly (outside the Chapter 13 Plan) to all the mortgage
holders the required mortgage payments, and (2)
to pay to the Chapter 13 Trustee the payments required
under the Chapter 13 Plan.
You will be paying the
regular mortgage payments directly to the creditors AND you
will be paying the arrears to them through your payments under
the Chapter 13 Plan.
If you fail to pay the
Chapter 13 trustee, he has the obligation to dismiss your
Chapter 13, leaving you where you began (with the
foreclosure). If you fail to pay the mortgage payments to all
of the mortgage holders, they will be able to obtain the right
to continue with the foreclosure.
Either
way, the Chapter 13 will fail and you will again be at the
"tender mercies" of your creditors.
This
has been a general explanation of the Chapter 7 program and is
not intended to give you legal advice. To see how the program
might affect you, please see me for a conference
|
