Submitted by Rachel R on Tue, 10/11/2016 - 9:52am
Chapter 13 may be the debt answer you need
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Chapter 13 is a North Carolina bankruptcy option for those who either can’t qualify for Chapter 7 or don’t want to go that route. Chapter 13 gives you time to catch up on past-due debt and is recommended for people with secured debt they have fallen behind on—this includes a mortgage, car loan, and other debts that have an asset as collateral.
Do You Qualify for Chapter 13 Bankruptcy?
Almost any wage earner (i.e. someone with an income stream coming in) can qualify for Chapter 13 unless you are precluded because of a recent bankruptcy discharge or other legal reason. This form of bankruptcy sets up a repayment plan to allow you to get caught up on debt. You’ll have to make your current debt payments (monthly mortgage and auto loan), pay your costs of living (utilities, groceries, etc.) plus monthly installments towards your past-due balances.
How Does the Chapter 13 Plan Address My Debt?
Your repayment plan will be set for three to five years with a goal to catch up on your delinquent debt and usually pay some towards your unsecured debt (credit cards, medical bills, etc.). Your monthly installment payments are sent to a North Carolina bankruptcy trustee assigned to your case and then you send your regular monthly mortgage and car payment to the creditor. The trustee sends out money to your creditors as part of your repayment plan each month.
In What Order Does Chapter 13 Pay Off Debt?
If your lawyer fees are part of your Chapter 13 plan (many debtors go this route because they can’t afford to pay attorney costs out of pocket up front), then that amount, plus the fee to the trustee to manage your case, is paid first. After those obligations are satisfied, priority debts are paid next. These include child support or court-ordered alimony, wages to employees (if you own a business), non-dischargeable tax debt, etc.
Next, secured debts are paid. This is where your past-due mortgage and car loan payments are caught up. Lastly, unsecured debts are paid. The amount that goes to unsecured debt will vary and should equal the amount they would have been paid if you opted for Chapter 7 bankruptcy instead, in addition to whatever disposable income is left over in the plan after your secured obligations are met. This will vary, and these are always paid last in your plan.
How Much Will My Chapter 13 Payments be?
To estimate your payments, look at the past-due balances on your auto loan and mortgage, add in attorney fees (you can use Google to see average costs near you), and tack on several hundred dollars for court costs plus 3-10% for the Trustee fee. Finally, divide this by 60 months (the length of most repayment plans). This will give you an idea of your minimum repayment obligation, but bear in mind that your current payments must also be made.
For example, if your Chapter 13 repayment plan is $600 a month, then you must pay that on top of your mortgage, auto loan, and living expenses such as utilities, fuel, auto and health insurance, groceries, child care costs, current child support and alimony obligations, etc. This can often be a challenge for debtors to keep paying their costs of living plus installments towards their past-due balances. You won’t have much budgetary breathing room while in the plan.
Find Out More About North Carolina Chapter 13 Bankruptcy
If you’re being hounded by debt collectors, are behind on your mortgage, and are being threatened with foreclosure, Chapter 13 may be a good plan if you have equity to protect in the home. However, if you’re upside down on the mortgage (i.e. owe more than the house is worth), Chapter 7 may be preferable (if you qualify). Before deciding one bankruptcy chapter is better than another, consult an experienced and reputable bankruptcy attorney to discuss your options.
Call +1-919-646-2654 to schedule a free North Carolina bankruptcy consultation with the Law Offices of John T. Orcutt at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.
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