How to File Chapter 13 on Secured Loans
Chapter 13 bankruptcy is a way to stop the seizure of collateral on secured debt, such as a house, car or boat. Instead of liquidating the debtor's assets, as occurs under Chapter 7, Chapter 13 allows the debtor to reorganize his debt through a payment plan that may see a reduction in the principal or interest rate of his debts.
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Instructions
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Determine eligibility. People can file for Chapter 13 bankruptcy if they have not filed for such protection in the preceding 180 days and the total of their debts is below $1,010,650, though this amount is periodically adjusted according to government inflation measures. Corporations file for reorganization under Chapter 11, not Chapter 13.
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Attend credit counseling. Among the new stipulations of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was the requirement that bankruptcy petitioners must receive counseling from an approved credit counseling agency, either in an individual or group briefing, within 180 days of filing their claim. During the process, a preliminary bankruptcy payment plan will be developed. This measure is designed to streamline the court's involvement in the bankruptcy process, help prevent future bankruptcy and to make bankruptcy filing less convenient. See Additional Resources below for more on the 2005 changes to the bankruptcy law.
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File papers. Formal proceedings begin with the filing of a bankruptcy petition in the local federal district court. Along with the petition, the court will likely require within 15 days a copy of the bankruptcy plan, schedules of assets and liabilities, a list of current income and expenditures, a statement of financial affairs and proof of attending credit counseling. Among other documents, when the case is assigned a trustee, the debtor will be required to provide copies of the most recent tax return.
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Pay the Trustee. Within 30 days of filing the bankruptcy, the debtor must begin making payments on his debt. The amount of these payments are based on disposable income as determined by statute. Payments are made to the trustee, who manages the disbursement of funds to secured creditors.
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Attend the confirmation hearing. After the court-appointed trustee meets with creditors, the court will hold a confirmation within 45 days to rule on the bankruptcy plan. At this point the plan may be approved or required to be modified if it does not provide creditors at least as much as they would receive under a Chapter 7 liquidation of the debtor's assets. The court could also dismiss the case, dissolving the bankruptcy proceedings entirely.
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Tips & Warnings
Chapter 13 laws can help those who are "underwater" on a mortgage or loan. If the remaining mortgage is more than the fair market value of the collateral, the court can allow the payment of the market value as satisfaction of the lien and treat the remainder as an unsecured debt.
Like all other forms of bankruptcy, Chapter 13 does not provide any relief for the repayment of so-called "priority" claims, including tax debt, child support, alimony or student loans. Though Chapter 13 is not as damaging to an individual's credit as Chapter 7, it will have adverse affects for years, making loans harder to obtain and more costly.
