CHAPTER 13 BANKRUPTCY IN ALABAMA
REORGANIZE YOUR DEBTIn a Chapter 13 case you file a “plan” showing how you will pay off some or all of your past-due and current debts over three to five years. A Chapter 13 allows you to reorganize your debts in a way that normally makes them affordable based on your income and the debt you are keeping. One positive thing about a Chapter 13 is that it costs a lot less upfront to get it filed because the bankruptcy law allows you to pay your filing fee and attorney fees on a monthly basis through your Chapter 13 plan payment. Another important thing about a Chapter 13 case is that it will a stop foreclosure of your house all the way to the minute it is sold and will stop repossessions of vehicles up until the point it has been picked up by the lender. So, in a Chapter 13 you can keep valuable property--especially your home and car--which might otherwise be lost.
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CREATE A PLAN TO CATCH UP AND GET OUT OF DEBT
To file a Chapter 13 you or your spouse will need regular income (wages, Social Security, Disability, retirement, etc.) because you will be making a monthly payment each month for 3 - 5 years. The amount of your payment will be based primarily on 2 things: (1) how much you need to pay over 36 to 60 months to pay off any mortgage arrears, the payoff of any vehicles you want to keep and/or other secured debts, and the filing fee and attorney fees to be paid in the case; and (2) your monthly expendable income, which is your household (you and your spouse, even if your spouse is not filing) net income less your reasonable and necessary household expenses. Your payment will normally be the higher of these two numbers.
In most cases your monthly outgo for debt under a Chapter 13 will be significantly less than the combined payments for your debts without filing a Chapter 13. How does this work? First, you normally pay only a small percentage of the debt owed to unsecured creditors such as credit cards and medical bills and unsecured loans. Even that amount is paid without interest. Second, if you are paying a high interest rate for vehicles, furniture, and other secured debt that you are wanting to keep, the interest rate will be reduced to 5.25% and the total amount of the debt will be spread over up to 60 months. If you have a mortgage, only the arrearage goes into the plan. Your regular monthly mortgage payment will need to be paid starting the month after you file your bankruptcy.
A Chapter 13 will also allow you to save your house or real property if you have too much equity in it to file a Chapter 7 (see Chapter 7 Bankruptcy for an explanation of this).
You should consider filing a chapter 13 plan if you:
In most cases your monthly outgo for debt under a Chapter 13 will be significantly less than the combined payments for your debts without filing a Chapter 13. How does this work? First, you normally pay only a small percentage of the debt owed to unsecured creditors such as credit cards and medical bills and unsecured loans. Even that amount is paid without interest. Second, if you are paying a high interest rate for vehicles, furniture, and other secured debt that you are wanting to keep, the interest rate will be reduced to 5.25% and the total amount of the debt will be spread over up to 60 months. If you have a mortgage, only the arrearage goes into the plan. Your regular monthly mortgage payment will need to be paid starting the month after you file your bankruptcy.
A Chapter 13 will also allow you to save your house or real property if you have too much equity in it to file a Chapter 7 (see Chapter 7 Bankruptcy for an explanation of this).
You should consider filing a chapter 13 plan if you:
- Are facing foreclosure and want to save your home;
- Are facing repossession of your car, truck, other vehicle, mobile home, and/or furniture, etc.;
- Are being garnished or about to be garnished and will not be able to save up the money needed for a Chapter 7;
- Are having civil legal issues with child support or alimony;
- Are having issues with tax debt to the IRS or state;
- 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.
- Have equity in property that prevents the filing of a Chapter 7 Bankruptcy;
- Have income that exceeds the Chapter 7 Means test to a point where you cannot file a Chapter 7 Bankruptcy.