Question Mark ManA Chapter 13 bankruptcy is a three to five year repayment plan.  The main purpose of a Chapter 13 is to stop a foreclosure on a home.  Other reasons to file a Chapter 13 is to repay back late or overdue taxes, alimony, and child support.  The other main reason a person would file a Chapter 13 is when that person fails the “means test” and makes above the average income for their area or state. If you fail the means test you cannot file a Chapter 7, but can still file a Chapter 13 bankruptcy and eliminate most of your debts over a five year monthly partial repayment plan.

A Chapter 13 plan is usually paid back in three to five years making monthly payments.  If you pass the means test, you decide the time period the debts are repaid.  If you fail the means test and make above the average income for your area, you are required to pay back the debts over a five year or 60 month repayment plan. However, many times you will only pay back pennies on the dollar for your unsecured debts.

The number one reason most people file a Chapter 13 bankruptcy is to stop a foreclosure on their home. A Chapter 13 is, in theory, like a “loan” from the federal government.  You are “loaned” the money to catch up on your house payments and stop the foreclosure.  The instant you file the bankruptcy, you become “current” on your house payments.  However you have to begin making your regular house/mortgage payments, plus you have to pay back the amount you are behind on your house payments over a three to five year repayment plan.  You will make these payments to the Chapter 13 Trustee.  In this area of North Carolina the Chapter 13 Trustee is Kathryn Bringle.  However, your Chapter 13 Trustee could be Anita Jo Kinlaw Troxler, Steven Tate, or Warren Tadlock.  The Chapter 13 Trustee will disburse these monthly payments to your mortgage company and your other creditors over a 36-60 month plan.

The Chapter 13 Trustee will usually require you to make your car payments through the Chapter 13 plan.  In theory, your car payments will be “refinanced” in the Chapter 13 plan.  Many times the Chapter 13 plan may even reduce your monthly car payments and interest rate.

In a Chapter 13 bankruptcy,  most of your unsecured debts such as credit cards, personal loans, and medical bills are paid back at a small percentage of the full amount you owe.  Depending upon your judicial district, you will usually pay back between 1% -20% of these debts.  For example, if you owe $25,000 in credit card debt and $10,000 in medical bills your total unsecured debt would be $35,000.   If you are required to pay back 5% of this debt over 48 months in a Chapter 13 you average monthly payback amount on these unsecured debts would be $47 per month for four years in the Chapter 13 bankruptcy ( This amount is an estimate, many other factors could change this amount).

Compare this to paying back the full $35,000 at 18% interest over 48 months, your payment could be $1029 per month.  Compare $47 per month in a Chapter 13 to $1029 per month if you were paying these debts on your own.

At the end of your completion of the Chapter 13 plan the federal judge issues an order stating these debts have been discharge and you legally owe no money on these debts.

What about tax debts? Most tax debts in which you owe the IRS, the North Carolina Department of Revenue, or county taxes can be repaid under your terms in a Chapter 13 bankruptcy.  Usually the IRS, etc. demands the payment terms, such as the monthly payments and the number of months they allow you to pay back these taxes.  The IRS and state can garnish your paycheck and take money out of your bank accounts when they decide you should pay.  In a Chapter 13, you decide to pay back the taxes under your terms.

The Chapter 13 allows you up to 60 months to pay back the taxes.  However, you still have to pay back in full the amount you owe in most cases.  The good news is some older tax debts may be nearly eliminated and you only have to pay back pennies on the dollar on these older taxes.  This is very complicated, so see us for the details.

A Chapter 13 bankruptcy can also stop the repossession of an automobile. Many times a person may get behind on their car payments.  A Chapter 13, in theory, gets you current on the car payments and restructures your car loan with the finance company.  Many times it may reduce your current monthly car payments and interest rate.  Usually the Chapter 13 Trustee will make the car payments on your behalf in a Chapter 13 plan payment.