Chapter 13 Bankruptcy laws
In order to understand Chapter 13 section bankruptcy laws, you need to first understand Chapter 7 bankruptcy laws, since Chapter 13 is essentially a modification of Chapter 7.
So read the Chapter 7 section first, and then read this section.
In Chapter 7 Bankruptcy, you sell everything you own, with some exceptions, and you use the money that you raise, to pay the people who you owe money to. There is a list of things that you can keep and not sell in Chapter 7 section bankruptcy, while still getting rid of all of your debts.
If you own more than what is on the list, then you have things that need to be sold in a chapter 7 case.
If you have things that will need to be sold upon filing a chapter 7 case, and you don't want to sell them, then Chapter 13 section might help you.
In Chapter 13 section, you can keep the extra stuff that you want to keep, so long as you agree to pay for it out of your future earnings.
So your creditors are still going to get paid what they would have gotten if you sold your property, which is usually a percentage of what you owe, but they are going to get it over time, instead of right away.
To accomplish this, your bankruptcy lawyer prepares a "plan" for how you will pay, and who will get paid. This "Chapter 13 section Plan" is presented to the bankruptcy judge for approval. If the judge approves it, then it is said to be "confirmed."
Under a confirmed plan, you usually make payments for two or three years. Usually your lawyer gets paid from the first of your payments, so that if you can't afford to make all of your payments, at least your lawyer got paid.
One benefit for some people is where you have equity in your home, but can't afford your other bills. Chapter 13 used to be called the "home saving" bankruptcy.
It is the equity in your home that you want to save from the Chapter 7 section liquidation sale. So it is the equity in your home (beyond the amount that you get to keep for free) that you pay for over time with your Chapter 13 section plan payments.
You might think that you are paying twice for you home this way, but actually, you got rid of a lot of other debt in the bankruptcy.
You are not actually buying your home twice. You are paying the people you owe money to, but only part of what you owe. This requires paying your mortgage, plus extra money toward your plan, plus your regular ongoing expenses.
If you can not afford all of this, then selling your home and getting the cash might be better than delaying the disaster of losing everything later anyway.
One benefit for people in foreclosure is the people who got behind in their payments because of some problem with their income, but who are now able to afford the payments.
They are now behind by a lot, and the mortgage lender will not give them a modification.
They can not afford to cover all of the back payments, because it might be ten or twenty thousand dollars or more, and the bank says for example that their income is too high to qualify for a modification.
And they might have no equity.
This might be the only case where bankruptcy can actually help a person in foreclosure.
Here is how Chapter 13 section bankruptcy can help a person in foreclosure.
Remember: You need to be able to afford your regular mortgage payment, plus all of your regular living expenses, including car expenses if you need to drive, plus your Chapter 13 plan payments.
If you can't afford all of these, then you are not likely to be helped by Chapter 13.
The Chapter 13 section plan is proposed by your lawyer, and presented to the bankruptcy judge, and to your creditors.
Your creditors might object to the plan, and the judge has to decide what plan terms are right.
The judge eventually confirms a plan, and your creditors, including your mortgage lender, are required to accept it whether they like it or not.
So what your bankruptcy lawyer does is propose that the amount of money that you are behind in your mortgage payments, gets included in your Chapter 13 plan, to be paid over time to your lender.
You do it this way because your lender refused to let you pay this money over time outside of a bankruptcy.
This is not very common, because your lender will usually let you make the payments over time, or will give you a modification, if you can afford it, outside of bankruptcy.
Whether to use Chapter 13 this way or not is sometimes an emotional decision rather than a financial one, since the home might be worth considerably less than what you owe, even after you make the extra Chapter 13 section plan payments.
On the other hand, with bad credit, the home you are currently in might be the only one that you will have a chance to own during the coming years, so the Chapter 13 bankruptcy might actually be a help to you.