With Chapter 13 you make monthly payments to a court appointed trustee to pay back some or all of your debts over a three to a five year period. The amount of the payment is based on the amount of your income and expenses, and in some cases is as low as $100 per month regardless of the amount of debt that you have. For secured loans like home mortgage or vehicle loans, you have the option to pay these on your own, or you can put the loans into the plan and restructure the payments. Chapter 13 can also stop repossessions or foreclosures by allowing you three to five years to catch up the back payments through the trustee. You also have the option to surrender the property to be relieved of the debt.
Do You Qualify: You must have a steady source of income (wages, social security or business income), and the total amount of your unsecured debts (credit cards, medical bills) must be under $335,000.
Procedure: Once the Chapter 13 petition is filed, all collection attempts by your creditors including telephone calls and repossessions stop. Approximately thirty days after your case is filed you have one short court appearance with the trustee and the judge. The trustee will want to make sure that you understand what payments, if any, you are making on your own and how the plan will work. At the completion of the plan payments you receive a discharge order relieving you of liability on the debts dealt with by the plan, whether they are paid in full or not.
Credit Reporting: Chapter 13 stays on your credit report for a seven year period from the date that it is filed.
Note: Chapter 13 is a more complex area of practice than Chapter 7 cases. You should be sure to consult an attorney that does both kinds of cases, and is familiar with the local rules in your area, to make sure that you are choosing the right chapter.
1. What about my regular payments like house, car, utility and insurance bills?
If you want to keep the house or car, you can just keep making the regular payments on your own "outside" of the plan. The same goes for utility and insurance payments. If you are behind on utility bills like electric or telephone, bankruptcy can stop a shutoff and start you fresh with a zero balance. With Chapter 13 you have the additional option of restructuring these loan payments by placing them into the plan and have them paid by the trustee.
2. What is the difference between Chapter 13 and credit counseling?
Most credit counselor organizations will try to negotiate a new repayment schedule of your debts, and possibly lower the rate of interest. Any such agreement requires the agreement and participation of your creditors. Chapter 13 plans are not a voluntary agreement with the creditor, they are a court order that the creditor is required to follow. By all means, avoid Chapter 13 if you can work with your creditors on a voluntary basis, but if this route fails then Chapter 13 is available to take back control.
3. Can I get rid of second mortgages on my home or lower the payments on my vehicle in Chapter 13?
Chapter 13 can sometimes lower your vehicle loan payments, if your vehicle is worth significantly less than the loan balance or your interest rate is very high. In some cases a second mortgage can be removed from your home in a Chapter 13 case if the home is worth less than the balance on the first mortgage.
4. Will I lose any property in Chapter 13, like my retirement or pension plan?
Generally no, as Illinois law gives you "exemption" protection over most types of property and with Chapter 13 you can often protect your property even if you are over the limits. It is important to seek competent legal advice to make sure that you do not place your property at risk.
5. What if I have additional questions?
We suggest that you call our office for a free, no obligation office consultation to have your questions answered. Call our office at (309) 673-5535.