Soucy Law Office
375 Gorham Street
Lowell, Massachusetts 01852
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Chapter 13

Chapter 13 allows people who have “regular income” (including regular retirement income) to pay their creditors through a repayment plan of up to five years.  The bankruptcy case stays open while the debtor makes plan payments, and the debtor receives his or her discharge after completing the payments called for by the plan.

The term of the plan (three or five years) and the amount of the plan payments will depend on the debtor’s circumstances and how much “disposable income” he or she has, though the debtor does not necessarily have to repay all of his or her debts in full as part of the plan (most don’t).

Chapter 13 is frequently used to stop a foreclosure or car repossession, as debtors can use their Chapter 13 plan to catch up on the arrearages owed on secured claims.

Debtors can also use a Chapter 13 plan to pay off debts they could not discharge in a bankruptcy, like certain taxes and domestic support obligations.  Chapter 13 is also a good avenue when it looks like a debtor makes too much to satisfy the Chapter 7 “means test,” thus making it likely that a Chapter 7 case would be dismissed, or when the debtor wants to hold onto non-exempt property that would otherwise have been sold by the Chapter 7 trustee.

Chapter 13 also provides debtors with flexibility in dealing with certain secured lenders.  For instance, you can use Chapter 13 to “strip-off” second mortgages if the first mortgage exceeds the value of the property.  If you own a vacation home, a multifamily or other rental property, you can also use Chapter 13 to strip the mortgage lender’s secured interest in your property down to the value of the property.  (Unfortunately, the Bankruptcy Code does not permit you to do the same to mortgages on single-family principal residences.)

Once a mortgage is either “stripped off” completely or “crammed down” to the value of the property, you can treat the balance of the mortgage debt just like any other unsecured claim in your Chapter 13 plan (i.e., receiving pennies on the dollar).  You can also use Chapter 13 to “cram down” car loans where the vehicle is worth less than is owed.