Chapter 13 (Reorganization)
Debt Consolidation
In a Chapter 13 case you file a "plan" showing how you will pay off some of your past-due and current debts over the next three to five years. The most important thing about a Chapter 13 case is that it will allow you to keep valuable property--especially your home and vehicle--which might otherwise be lost, as long as you can make the payments which the bankruptcy law requires to be made to your creditors. In many cases, Chapter 13 functions as a bill consolidation of secured debts.
You should consider filing a Chapter 13 plan if you:
- own your home and are in danger of losing it because of money problems
- are behind on debt payments, but can catch up if given some time
- have valuable property which is not exempt, but you can afford to pay creditors from your income over time
During the Chapter 13 plan you will need to have enough income in Chapter 13 to pay for your necessities and to keep up with the required payments as they come due.
Debtors do not lose their home or vehicle, unless the notes on the house or vehicle are unreasonable and/or unaffordable, or unless it is the rare case where Texas law cannot exempt the property, and the debtors are unwilling/unable to pay a large dividend to unsecured creditors. This area of law requires that you have a good attorney to advise you how to maximize the benefits available under Chapter 13.
Remember that many creditors collateral such as a mortgage or lien on a home or vehicles. Bankruptcy does not make these security interests go away. If you don't make your payments on that debt, the creditor may be able to take and sell the home or the property, during or after the bankruptcy case.
There are several ways that you can keep collateral or mortgaged property after you file bankruptcy. You can agree to keep making your payments on the debt until it is paid in full. Or sometimes you can pay the creditor the amount that the property you want to keep is worth. This is commonly called the “cram-down.” Finally, if you put up your household goods as collateral for a loan (other than a loan to purchase the goods), you can usually keep your property without making any more payments on that debt.
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