Bankruptcy

How Does Chapter 13 Bankruptcy Work? In The Beginning?

By Kevin Gipson, New Orleans Bankruptcy Attorney

“Bankruptcy: What is Chapter 13 Bankruptcy?” provides a general overview of a Chapter 13 bankruptcy.

But exactly how does Chapter 13 bankruptcy work?  Will I be able to keep my house?  My car?

These are questions that I hear often from clients who are considering their bankruptcy options.

This article discusses the purpose for which Chapter 13 bankruptcy was originally intended before the credit card lobby got their hands on Congress and the Bankruptcy Code.

Before Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) into law in October of 2005, the answer to how a Chapter 13 bankruptcy worked was fairly simple:  If you had a client who was behind on a mortgage on their house, or a client that was behind on a car note, or both (this type of debt is known as secured debt), and if that client was at risk of losing the house or the car, a Chapter 13 bankruptcy would allow the client to propose a plan as to how they would pay back the debt and be able to keep the house or car.

Pre-BAPCPA, an attorney would determine the amount of net income that was available after deducting the client’s monthly expenses (which includes keeping the secured debt current), and if there was enough money left, the client/debtor would commit to pay that amount on a monthly basis for a period of 36 to 60 months to catch up on the monthly payments that were owed on the secured debt.

The client/debtor might also be required to pay some percentage of his unsecured debts if there was still money left over after paying the arrearages on the secured debt.

Post-BAPCPA, while a Chapter 13 bankruptcy can still be used as it has been described in this article, the law now requires a certain portion of those individuals that need to file bankruptcy to file a Chapter 13 bankruptcy even if they do not have overdue payments on their secured debt.

The changes created by the enactment of BAPCPA will be discussed in later articles in this series.

Full post as published by Bankruptcy Law Network on April 25, 2010 (boomark / email).