Chapter 13 Bankruptcy Legal Help:Repayment Plan, Mortgage Cure, and Asset Protection

11 U.S.C. §§ 1301-1330. Reorganization chapter for individual consumers with regular income. Sometimes called 'wage earner plan' historically.

Debtor proposes plan to pay creditors over 3-5 years. Trustee administers payments. Debtor keeps property. Discharge at plan completion.

Cure mortgage arrears, protect home equity above exemption, lien stripping for underwater junior mortgages, vehicle cramdown, generally protect more property than Chapter 7.

3 years if income below state median (under means test). 5 years if income above state median. Cannot extend beyond 5 years except very limited circumstances.

Regular income required. Secured debts under $1,580,125 (2024). Unsecured debts under $526,700 (2024). Not eligible if previously filed Chapter 13 dismissed within 180 days for specific violations.

$313 filing fee. Lower than Chapter 7's $338.

Typically $4,000-$6,000 for Chapter 13 (substantially higher than Chapter 7 due to longer involvement). Often paid through plan rather than upfront.

Standing trustee (not a private trustee like Chapter 7). Administers all Chapter 13 cases in district. Receives plan payments and distributes to creditors. Trustee fee 7-10% of plan distributions.

All required payments made. All required filings made. All required actions taken. Debtor receives discharge.

Chapter 13 protects more property, allows mortgage cure, takes longer, costs more total, requires regular income. Chapter 7 faster and cheaper but less property protection. Strategic choice.

Debtor can convert to Chapter 7 at any time (subject to eligibility). Court can require if plan not confirmed. Strategic flexibility.

11 U.S.C. §§ 506(a) and 1322(b)(2). Court determines secured value based on collateral. Lien on collateral limited to that value.

Junior mortgage (second mortgage, HELOC) on primary residence wholly unsecured (no value remaining after senior mortgage). Specific procedural requirements.

Debtor files motion to value collateral. Establishes home value below first mortgage balance (no equity for junior lien). Court orders junior lien stripped (becomes unsecured debt).

Junior mortgage no longer secured against home. Becomes unsecured debt in bankruptcy. May be partially or fully discharged through plan.

Even $1 in junior mortgage equity (home value above first mortgage) prevents lien stripping. Must be wholly unsecured (no equity).

Generally at petition filing date. Subsequent appreciation does not affect already-confirmed lien stripping.

Typically requires appraisal supporting valuation. Specific evidence required to establish home value.

Senior mortgage (first mortgage) cannot be lien stripped on primary residence. Only junior mortgages.

Junior mortgages on investment property can be stripped or modified. Different rules from primary residence.

Lien stripping generally confirmed in plan. Junior mortgage holders may object. Specific procedural requirements.

If Chapter 13 case dismissed before discharge, lien stripping may be unwound. Must complete plan to make stripping permanent.

Particularly powerful in markets where home values declined below first mortgage. Common after housing crisis. Less common in current appreciating market.

11 U.S.C. § 1328(b). Available if debtor cannot complete plan due to circumstances beyond debtor's control, modification not practicable, creditors received at least Chapter 7 amount. Limited but important option.

Discharge of dischargeable unsecured debts not paid through plan. Less complete than full plan completion discharge.

Debtor can convert to Chapter 7 at any time (subject to eligibility). Common when plan becomes unaffordable. Specific procedural requirements.

Case dismissed by court for: failure to make plan payments, failure to file required documents, bad faith, other violations. Effects vary.

Debtor can voluntarily dismiss Chapter 13 case (right under 11 U.S.C. § 1307(b)). Sometimes used when plan unworkable. Re-filing options.

Bankruptcy protections lost. Stay terminated. Creditors can resume collection. Discharge not entered. May affect future filings.

Specific timing limits. Multiple dismissals can affect future stay protection.

Often better than dismissal or conversion. Reduce payments, extend term within 5-year max, address specific issues.

Common cause of plan failure. Options: modification (reduce payments), conversion to Chapter 7 (eliminate unsecured debt), hardship discharge if specific criteria met.

Similar options. Documentation of medical hardship may support plan modification or hardship discharge.

Trustee must consent to certain modifications. Trustee files motions for dismissal if debtor falls behind on payments.

Plan should be feasible at filing. Realistic income and expense assumptions. Buffer for unexpected events. Address risks proactively.