What is Chapter 13 Bankruptcy, Reorganization?

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Services for Real Estate Pros with STAMATAKIS + THALJI + BONANNO

A Chapter 13 can stop the foreclosure permanently.  It may allow a delinquent borrower to pay back the delinquency and reinstate the mortgage, over a period of time, usually five years.  A borrower must make a regular payment and part payment each month until the delinquency is caught up or cured.  It is similar to a repayment plan or forbearance agreement, but Chapter 13 permits more time to pay back the delinquency.  In a Chapter 7, you will have to pay back the arrearages much quicker than 5 years, or the foreclosure will continue.

Any individual, even if self-employed or operating an unincorporated business, is eligible for Chapter 13 relief as long as the individual's unsecured debts are less than $307,675 and secured debts are less than $922,975. 11 U.S.C. § 109(e). These amounts are adjusted periodically to reflect changes in the consumer price index.

Chapter 13 offers individuals a number of advantages over liquidation under chapter 7. Perhaps most significantly, chapter 13 offers individuals an opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time. Nevertheless, they must still make all mortgage payments that come due during the chapter 13 plan on time. Another advantage of chapter 13 is that it allows individuals to reschedule secured debts (other than a mortgage for their primary residence) and extend them over the life of the chapter 13 plan. Doing this may lower the payments. Chapter 13 also has a special provision that protects third parties who are liable with the debtor on "consumer debts." This provision may protect co-signers. Finally, chapter 13 acts like a consolidation loan under which the individual makes the plan payments to a chapter 13 trustee who then distributes payments to creditors. Individuals will have no direct contact with creditors while under chapter 13 protection.

Married individuals must gather this information for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse is required so that the court, the trustee and creditors can evaluate the household's financial position.

Comments (1)

David Monsour
Keller Williams Keystone Realty - Gettysburg, PA
ABR - www.realty-insights.com

The number of bankruptcies right now is ridiculous.  I saw a statistic in a magazine (can't remember which) but the number of bankruptcies has more than tripled compared to the past few years.

Bankruptcy attorneys are surely making a killing, but I know none of them feel good about it. 

Mar 12, 2009 04:04 AM