Chapters 12 and 13 in Practical Terms

If you are unable to pass the Means Test (thereby qualifying for Chapter 7), you will generally be 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. Panhandle Law Center , LLC, can help you make a wise decision on whether to file for Chapter 13.

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.  Contact Panhandle Law Center , LLC, and see if you can use this method to avoid the loss of your mortgaged property.

Chapter 12