A Chapter 13 bankruptcy allows you to pay on outstanding debts at a lower amount and with no interest rate. Many Chapter 13 clients pay back cents on the dollar. Filing for Chapter 13 bankruptcy is an option for those who have a regular income and can make payments on the amount owed. The debtor will propose a payment plan that will last between three to five years.
Chapter 13 might be used to stop home foreclosure, to pay back taxes, keep non-exempt property, and keep your vehicle if you have fallen behind on payments. If you are able to continue making payments and completes the plan, the remaining debt will be discharged at the end of the pay back agreement. The amount you will have to pay is based on a budget which shows the amount of disposable income available.
Chapter 13 also allows individuals to make up their overdue payments over time and restore the original agreement. Most times, the interest rate on a vehicle loan is lowered to 5-6% for the loan and can help lower your vehicle payment. The debtor will have to make the first payment 30 days after filing, and a monthly payment thereafter. Payments might be made through wage withholding, depending on the circumstances.
Creditors are paid in order of priority. A mortgage or auto loan may be made first, followed by other priority debts like taxes or child support. Unsecured creditors are the last to receive payment.
To file for Chapter 13, the individual must show that he or she filed federal and state tax returns during the three years prior to filing for Chapter 13. The court may postpone proceedings to allow the filer to become current on tax filings. If the filer is unable to show proof of returns, the court may dismiss the Chapter 13 filing.