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Chapter 13 Bankruptcy

Chapter 13 Bankruptcy is also known as "wage earner" bankruptcy because, in order to file for Chapter 13, you must have a reliable source of income that you can use to repay some portion of your debt. Chapter 13 bankruptcy differs from Chapter 7 in several respects.

Under Chapter 13, the debtor must propose a repayment plan that details how he is going to pay back his debts over the next three to five years. The minimum amount he would have to repay depends on his disposable income, i.e., the amount of money left over at the end of the month after deducting all necessary and allowable expenses. The debtor would then repay his unsecured creditors a percentage of the claimed amount.

Chapter 13 provides many valuable advantages for many debtors who would have otherwise preferred to file under Chapter 7. Unlike in Chapter 7, the debtor filing bankruptcy under Chapter 13 keeps all property and assets owned outright. There is no danger in Chapter 13 of the bankruptcy trustee taking any property from the debtor.

Chapter 13 is also more appropriate for debtors who are behind on payments to secured creditors because Debtors have the option to make up missed payments to avoid repossession or foreclosure by including the past due amounts in their repayment plan and making them up over time.

Perhaps the most valuable advantage provided by Chapter 13 Bankruptcy is the ability to strip off junior liens recorded on their homes. As a result of the housing crisis, most debtors today can find some relief to falling home values. If a homeowner has more than one mortgage, and the first mortgage is “undersecured,” meaning that the current fair market value of the home has depreciated to an amount less than the principle owed on the first mortgage, then the Chapter 13 debtor can have the second mortgage (together with any other “junior” liens against the property) “stripped” from the property. That lien would then be treated as an unsecured debt and paid a percentage according to his disposable income.

Contact an Arizona Bankruptcy Lawyers at Gordwin Law today. Call our Chandler bankruptcy attorneys right now at (480) 786-1800.

Bankruptcy Law