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How Exactly Does a Chapter 13 Bankruptcy Work?

So you have talked to a bankruptcy attorney and they have told you that you have to be a Chapter 13 case.  Now you may need to be a Chapter 13 case for any number of reasons, sometimes you make too much money or you have property that is at risk, or you want to pay off or discharge taxes, but the bottom line is that you are going to be filing a Chapter 13 case.  So what does that even mean?

A Chapter 13 case is a re-organizational case.  In a Chapter 13 case you are going to repay some portion of your debt to a Trustee who will than distribute that money to your creditors.  This repayment is laid out in a Chapter 13 plan.  Your Chapter 13 plan will tell the Trustee what creditors you wish to pay, how much you wish to pay them, and what your plan is for the property that you do own.  This plan will be served on the Trustee and all of your creditors.  The creditor’s and the Trustee have an opportunity to object to this plan.  If there are no objections than your plan will be confirmed, you will pay your payment to the trustee for the life of the plan, either 36 or 60 months and when you are done making payments you will receive a discharge, most of the time, and your case will close.

So that is the most basic explanation of how a 13 works.  Your next question is probably, how much do I have to pay in my plan.

That Depends.  (I know, I hate lawyer answers too.)

Your payment to the Trustee will depend on the individual circumstances in your case.  If you are behind on your mortgage you can repay the past due payments through the plan and bring your mortgage current or seek a mortgage modification.  If you owe taxes, you can attempt to discharge those taxes and pay the portion that you will continue to owe through the plan.  In some cases, you just make too much money and your unsecured creditors (credit cards, personal loans) will be paid some portion of the amount you owe depending on the amount of money you make in addition to paying past due payments.  You can pay off car loans in Chapter 13 bankruptcy cases as part of your plan with lower interest rates.

Because a Chapter 13 bankruptcy case can do so much, every payment is different for every client.  It really depends on your individual needs and what you want your bankruptcy case to accomplish.  I have Chapter 13 cases where I am doing a lot and I have cases where all I am doing is paying mortgage arrears.  Make sure you discuss the goals of your case with an experienced bankruptcy attorney to make sure you maximize your Chapter 13.

More questions about filing a bankruptcy case in New Jersey, give my office a call at 732-302-9600 or fill out our online consultation form and we will call you!