How Does Chapter 13 Work?

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Going through bankruptcy can be an overwhelming process, but our compassionate Chapter 13 bankruptcy attorneys are here to help make the process as easy as possible for you. Here is a breakdown of how Chapter 13 works:

1. When a Chapter 13 bankruptcy is filed, a court-appointed trustee is assigned to your case.

2. Each month you send payment to the trustee.

3. The trustee then takes your payments and pays your creditors according to the terms of your reorganization plan.

4. Upon completion of your plan, you can be current on your mortgage, be free from credit card debt, and have the title to your vehicles.

 

Like Chapter 7 bankruptcy, you must meet certain requirements to file a Chapter 13 bankruptcy. You must have a regular source of income and be able to make regular monthly payments. As long as you make your payments to your appointed Chapter 13 trustee, the bankruptcy laws will protect you from creditors. This protection is referred to as an automatic stay. The automatic stay will stop a foreclosure on your home and stop or prevent a garnishment of your wages or bank accounts. The automatic stay also prevents creditors from hounding you with phone calls or sending you letters. The creditors must leave you alone, allowing you an opportunity to catch up on your mortgage arrears, late car payments, or any other debts that may be behind but that you intend to pay. So long as you successfully complete your Chapter 13 case, you will never hear from those pesky creditors again!

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How is Chapter 13 Bankruptcy Payment Calculated?

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You will probably be able to keep your house, your car, and other valuable property as long as you live up to the terms of your bankruptcy agreement. There are eight factors that determine your minimum payment in Chapter 13 Bankruptcy in Arkansas. They are the following:

1. What is your plan length? The length of your plan can be a minimum of 36 months (3 years) and a maximum of 60 months (5 years). Your Means Test results show you have “disposable income” to pay towards unsecured creditors. If you do not pass the means test and you are not paying everyone back in full, then the plan has to be 5 years.

2. The calculation of your disposable income. The amount of money you will have left after paying all of your necessary monthly bills is calculated, and you will have to pay at least that amount towards bankruptcy most of the time. There are exceptions. Also, courts typically allow debtors to keep an amount of money every month for entertainment purposes.

3. What secured property do you want to keep and pay for? Secured property is what can be taken away if you don’t pay for it, such as houses and cars. There are two major options:

   1. Surrender the property back to the creditor and not pay anything.

   2. Keep and pay for the property. If it was purchased recently, you have to pay the balance due plus interest, or if purchased not too recently (910 days for cars and 1 year for household goods), pay the balance due or the “retail” value of the property, whichever is less.

   3. With a house payment, there are three options:

      1. If the payments are current, continue to pay it yourself and don’t pay it through the Chapter 13 plan.

      2. Make the regular monthly payment through the plan, and if you are behind on the payment, catch up on the payments in the plan, so when the bankruptcy is over, you will be current and pick up and pay the normal monthly payment.

      3. Pay the balance in full within the plan.

4. What leased property do you want to keep and pay for? If you have leased property, you have three options:

   1. Reject the lease and let the creditor have the property back and pay them nothing.

   2. Accept the lease contract as written and continue to pay them directly, not through the plan, if your payments are current.

   3. Accept the lease contract as written, and pay it through the plan, and if you are behind on payments, catch those payments up through the plan.

5. What priority debts do you have? Priority debts are things such as taxes, wages owed to others, alimony, and child support. All priority debts, except child support, must be paid in full within the life of the plan. Full payment of back child support can be included within your plan. However, if it is not feasible, you may pay what the divorce Court requires, usually 10% above your current support obligation. In that case, you will owe unpaid back child support when you get out of bankruptcy. You must directly pay any current support obligation payments.

6. What, if any, non-dischargeable debt do you have to repay? Non-dischargeable debt can include student loans (the most common), punitive damages, judgments based on fraud, etc. Any unpaid amount plus interest and any collection fees will be due after you get out of bankruptcy. You have two options:

   1. Ignore the student loan and pay nothing through the plan.

   2. Pay your normal monthly payment and catch up on what you are behind.

7. What, if any, consumer, co-signed, or joint debts do you owe with other people who are not filing bankruptcy? You have two options:

   1. Pay nothing towards the obligation and let the responsibility fall on the co-debtor or person who is jointly obligated to the debt.

   2. Pay the debt in full inside the plan, plus interest.

8. What, if any, non-exempt property do you have to pay the value of? If you own property that is not exempt, then you will pay the value of the property to the trustee. If you file a Chapter 7, this property would be taken as well as sold by the trustee to pay your debts.

 

Chapter 13 Bankruptcy Attorneys in Little Rock

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The Brad Hendricks Law Firm is a Debt Relief Agency. We help people file for bankruptcy relief under the Bankruptcy Code. Chapter 13 bankruptcy is a way to make a fresh start for you and your family. Let us help determine if filing for Chapter 13 bankruptcy is the right solution for you!