Generally, a Chapter 13 bankruptcy is a reorganization plan bankruptcy, or a legal way to pay back a portion or all of the debts that you owe. In Chapter 13 bankruptcy, you are usually able to keep your house and/or car. The most common reason for filing a Chapter 13 bankruptcy is to allow you to catch up on your house and/or car payments and stop a foreclosure or repossession. In a Chapter 13 bankruptcy, your secured debts, including the amount you are behind on your house, your mortgage payment(s) and the amount owed on your car, and a portion of your unsecured debts including credit cards and medical bills can be repaid over a 3 to 5 year time period sometimes at a reduced interest rate.

How a Chapter 13 Bankruptcy Works

A Chapter 13 bankruptcy is a three to five year repayment plan. A person will generally file a Chapter 13 bankruptcy if either:

They are behind on their house or car payments and want to keep their house or car; or

They do not qualify for a Chapter 7 bankruptcy because their household income exceeds the amount allowed within the Means Test.

The Means Test is basically a calculation of your household income over the past six months compared to the median for the state where you live. If the household income for the past six months exceeds the median, your disposable income will be reviewed. 

The Chapter 13 bankruptcy plan will include the amount you are behind on your home, your monthly house payments to your mortgage company, your auto loans, taxes and a percentage of unsecured debts including credit cards, personal loans, medical bills, old repossessions and old foreclosures. A monthly payment will be determined, and you will make this payment each month to the Bankruptcy Trustee, who will then distribute the money to your creditors based on federal law.

Your Car Payment in Chapter 13 Bankruptcy

If you are purchasing a car and want to keep it, the amount owed to the finance company for your car will be included in the payment to the Bankruptcy Trustee. If you are leasing a car and you want to keep it, you will make those payments directly to the finance company from whom you are leasing the car. Remember, these expenses are considered in determining your Chapter 13 payment to the Trustee.

Completing Your Chapter 13 Bankruptcy

If you make your monthly Chapter 13 Trustee payments and all steps are followed, you will likely receive report of completion of plan payments after your designated 3 or 5 year time period. After successful completion of your Chapter 13 plan, you may receive a discharge from your obligation to repay certain debts. A discharge means that you are no longer responsible for any outstanding balances. You can begin a fresh financial future.

As you can see, Chapter 13 bankruptcy law can be complicated and, for most people, often confusing. Contact us for your free evaluation so that we may guide you through the bankruptcy process. 

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What a Chapter 13 Bankruptcy Can't Do

It is also important to note that, just like a Chapter 7 bankruptcy, a Chapter 13 bankruptcy will not wipe out certain debts. These include student loans, most taxes, alimony, and child support. In most Chapter 13 cases, however, taxes, alimony and child support arrears (or back payments) are repaid over the course of the Bankruptcy when the Trustee distributes the money to your creditors. 

How a Chapter 13 Bankruptcy Affects Your Creditors

After filing your Chapter 13 bankruptcy, most of your creditors will no longer be able to call and harass you about your debt. Instead, they can contact our office. However, if you are making direct payments to a creditor (for example, your mortgage company or companies) they may still contact you, usually through written correspondence.

San Antonio Chapter13 Bankruptcy Attorney