Chapter 13 bankruptcy is the chapter 7 alternative for Debtors who wish to keep their property. Chapter 13 is a reorganization. This is a repayment plan that may last as long as 5 years or as little as 3 years depending on your amount of annual income and other factors.
Your unsecured creditors (credit cards, medical bills, pay day loans, utility bills) are generally paid a small percent of what they are owed, sometimes as low as 1%. Upon successful completion of your plan of reorganization, your unsecured debt is discharged, meaning that this debt may never be collected from you again.
Your secured creditors (mortgages, car liens, loans with household goods pledged as collateral) are treated differently than your unsecured creditors. If you are behind on mortgage payments, you may keep your house and stop foreclosure proceedings. Chapter 13 provides you with the ability to cure (make up) the mortgage arrears over the life of the reorganization and allows to resume making the regular monthly mortgage payment. As a result, when you complete your Chapter 13 you will be current on your mortgage.
If you still owe money on your car, Chapter 13 allows to you to pay off the car through the plan at a reduced interest rate, usually around 4.75%. Further, you may stretch out the time you have to pay off the car for up to five years which dramatically reduces the monthly payment. If it has been more than 2 1/2 years (910 days) since you purchased your car, you are able to pay back what the car is worth, instead of what you owe on the car. This also may result in great savings.
Taxes are also capable of being paid and/or discharged inside Chapter 13. Once the bankruptcy is filed, the IRS or State may no longer collect money from you personally. Through your plan of reorganization you may pay back taxes without incurring any further interest, penalties or late fees. Moreover, the penalties that you owe for failure to pay the taxes are generally dischargeable for a small percent. Further, certain taxes are dischargeable in their entirety depending on when they were due and when and if you filed the required returns.
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