Chapters 12 and 13 in Practical Terms
If you are unable to
pass the Means Test (thereby qualifying for Chapter 7), you will
required to file for bankruptcy under either Chapter 12 or Chapter 13.
They operate similarly, it's just that Chapter 12 is reserved for
“family farmers” and commercial fisherman (subject to certain income
limits). Since the proceedings under the two Chapters are so similar,
Chapter 13 is addressed first. Below
is a discussion of how Chapter 12 differs from Chapter 13.
When a Chapter 13
bankruptcy petition is filed, an injunction called the automatic stay
(see discussion of the automatic stay in relation to Chapter 7 also on
this website) generally goes into effect.
In most cases it prohibits creditors from pursuing collection
activities against you while the bankruptcy is pending, unless they
request and get a relief from stay from the bankruptcy court.
In a Chapter 13 case
the Plan, which usually runs over 3 to 5 years, must be submitted to and
confirmed by the court. Payments, required to be made to the Trustee
under the Plan, will be based on the difference between your monthly
income and expenses (called Disposable income). All of your disposable
income must be committed to fulfillment of the Plan payment
requirements. Therefore, accurately gauging what your monthly income and
monthly expenses are is critical to development of the Plan.
Under Chapter 13 your
debts are prioritized and, generally, superior debts (such as past due
taxes and secured creditors) get paid off the top, with unsecured
creditors receiving their distributions (if any) afterward. You will be
relived of unsecured debts (so long as they are dischargeable) that
remain unpaid at the end of the Plan so long as all payments under the
Plan are made on time. Payments
on secured debts and ongoing taxes need to be made in a timely manner
during the course of the Plan regardless of the bankruptcy.
Chapter 13 as a Planning Tool
The Plan can be
powerful tool for mapping out your financial future. A Chapter 13
filling is likely to relieve you of the threat of foreclosure and allow
you to stop repossessions. Also, the Plan (successfully implemented)
will allow you to get caught up on past due payments (over the term of
the Plan). However, you must
(during the course of the Plan) keep current on your ongoing payments
for secured debts. If you do
not, relief from stay can be granted and foreclosure or repossession
will usually follow (despite your Chapter 13 bankruptcy).
Chapter 13 may
provide you with an expedient means of dealing with back taxes and
delinquent student loans as well.
, LLC, can help you make a wise decision on whether to file for Chapter
Second Mortgage Elimination
Homeowners often owe
more on their home mortgages than the residence is worth. If you have a
second mortgage and the value of your home is less than what you owe on
your first mortgage, you many times can eliminate the second mortgage by
using a Chapter 13 bankruptcy. Under
such a circumstance, the second mortgage essentially becomes an
“unsecured” debt which can then be discharged. If you are threatened
with foreclosure or repossession because you can’t make all the
payments on your multiple mortgages, Chapter 13 may be just the ticket.
, LLC, and see if you can use this method to avoid the loss of your
If you support
yourself and your family by commercial fishing or by being a family
farmer (even “pick your own” gardens can qualify), Chapter 12 is a
potential tool for obtaining the same benefits as would be otherwise
available under Chapter 13, but with longer payment terms and more
flexibility. Under Chapter
12 the Plan can be as long as 7 years (5 years is the maximum under
Chapter 13). Furthermore,
payments can often be arranged so they only need to be made quarterly
(as opposed to the monthly payments of the typical Chapter 13 Plan) or
even annually. You may also
qualify for Chapter 12 despite the fact that your income exceeds the
limits placed on Chapter 13 filers.
, LLC, can provide the information needed to determine whether Chapter
12 can be of help to you.