Most of the time chapter 7 is the best case scenario, however there’s also chapter 13. Chapter 13 should be used when there’s a lot of equity in a house or some other kind of asset that a debtor is trying to protect. An example of this can often be seen when a person comes in with a house that has a lot of equity in it. Well, a way to protect this is for the debtor to file a chapter 13. If there’s more than $15,000 or in a joint case bankruptcy more than $30,000 of equity, then a trustee may actually go after your house. By filing chapter 13 bankruptcy, the foreclosure process stops and the trustee doesn’t seize your house for the purpose of using the equity within it to pay of your creditors. However, once Chapter 13 is filed the secured debt, home mortgage has to be paid in full, you have to be able to make the original payments in full. The big benefit of filling chapter 13 is that it allows you to stretch your arrears payments that you missed for your home mortgage over the period of the payment plan.
Now, the good thing about that is the mortgage company can keep calling you and forcing you to make those late payments right before you file, but once you file those late payments are stretched out over three to five years and you have time to actually pay those out. So if you did get in a bad situation, something where you lost your work for a couple of months, got sick, other circumstances unforeseeable might have happened, the bank might being trying to foreclose on you. Now, your option is just to file a bankruptcy chapter 13 and all of the sudden you have three to five years to pay back the amount that you owe, and of course you’ve to keep making your mortgage payments.
In a chapter thirteen the debtor’s unsecured debt is handled very differently than in chapter seven. Debtor has to pay a portion of unsecured debt. The debtor might be required to pay anywhere from ten to one hundred percent of the unsecured debt over a period of three to five years. A formula determines the actual percentage of unsecured debt that is going to be paid off and the period over which the amount is going to be paid. There are two basic formulas that determine how much is going to be paid out. One formula looks at how much equity you have in your property, how much equity you have in your property that is the amount that you have to pay. If you have $30,000 of equity in your house, and you’re filing a chapter 13 you’re going to have to actually pay back at least $30,000 to these creditors. The reasoning behind this formula is simple. If you have $30,000 in your house you have two options, it’s either you’re going to sell it and give creditors the money, or you keep the house but you the creditors $30,000 within that three to five years. Now, even if you don’t have that much equity, there’s another formula that can be looked at and that is your income over your expense.