A lifeline for those drowning in debt
When individuals with good paying jobs fall behind on bills and need protection from creditors’ threatening them with foreclosure, repossession, wage garnishment or lawsuits, they often think there is nothing they can do to stop the impending financial catastrophe. Unbeknownst to them, filing Chapter 13 Bankruptcy may be the perfect solution for their problems.
Chapter 13 bankruptcy is a true form of debt reorganization. Individuals with good income and/or many assets develop a plan to repay their portion debt over a three-to-five-year period out of their disposable income, while stopping all legal action currently pending against them.
What is disposable income? It’s the money left over from your pay check after all your reasonable and necessary living expenses are deducted. For example, if you make $4000.00 per month and pay $3500.00 in reasonable and necessary living expenses like mortgage, food, utilities, insurance, transportation costs etc your disposable income is $500. This is used to pay your creditors over the course of the plan. You will repay a portion of the debt originally owed and once your plan is complete, you will no longer owe your creditors the original amount.
Naturally, Chapter 13 may not work for everyone but for those it does help, it is a lifesaver. It caps the amount of money owed, allows individuals to keep their home and/or car even if they are behind on their payment and stops creditors from threatening, suing or seizing wages or property.
Filing Chapter 13 also stops debt interest-rates from raising and caps the total amount owed on credit card debt and loans. Once a Chapter 13 repayment plan is completed, the debt is extinguished. Just keep in mind that certain types of debt – including student loans, alimony and child support – cannot be discharged under either type of bankruptcy, Chapter 7 or Chapter 13.
Perhaps the most compelling reason to opt for Chapter 13 protection over Chapter 7 is to save your home. If you’re behind on your mortgage, only Chapter 13, also known as a “wage earners’ plan,” allows you to make up missed payments and eventually become current on the loan.
Additionally, you may want to consider Chapter 13 if:
- you have a co-signer on a loan and want them to have some protection from creditors,
- you’re underwater on your first mortgage and want to use Chapter 13 bankruptcy to eliminate any junior liens on your home,
- you can’t file under Chapter 7 because you got a Chapter 7 bankruptcy discharge within the past eight years,
- you can’t use Chapter 7 because you can afford to pay back some of your debt and therefore fail the means test.
Chapter 13 protection is intended for individuals and married couples, even if the borrower is self-employed. However, the U.S. Bankruptcy Code does put some restrictions on who can file. An individual’s unsecured and secured debts cannot exceed a certain amount (currently $383,175 and $1,149,525, respectively). Because the debtor or debtors must follow a repayment plan, they also have to have a steady form of income to qualify.
If you have a good income but are caught in a financial nightmare because of high debt, explore your Chapter 13 options.
If you live in anywhere in the Upper Peninsula of Michigan, call the Upper Peninsula Bankruptcy Lawyers at Church and Korhonen, PC today for a free consultation with a Michigan Licensed attorney at (906)226.0001 or toll free at (800) 758-5611.
What do you have to lose except another sleepless night?