Chapter 13

Chapter 13 is known as a consumer reorganization. The primary reasons people file one is to retain equity in property they own, they make too much money to file chapter 7, or they are facing foreclosure and want to save their house.

The key to keeping assets in a Chapter 13 is to make sure to pay enough into a Chapter 13 payment plan to pay the same amount into the plan that the creditors would get if the Debtor had filed Chapter 7 and those items were liquidated instead. Additionally, if the reason someone is filing a Chapter 13 is because they make too much money to file Chapter 7, they must devote all of their disposable income into the chapter 13 plan to pay as much as possible to creditors. Now, while that sounds very difficult, it is important that a chapter 13 debtor budget as accurately as possible so they can cover all their expenses while they're devoting the rest of their money to their Chapter 13 payment plan.

Chapter 13 cannot modify mortgages for primary residences, however it can allow a debtor to catch up on their mortgage, provided no foreclosure sale has happened yet. How this works is that the mortgage arrears are paid through the payment plan over a 36 to 60 month time frame. Once these arrears are caught up and the plan is completed, the Debtor is current on their mortgage. The key to making this work is that the Debtor has enough money to make these payments. It is generally not helpful for someone who cannot afford their house payment and barring unforeseen circumstances, is not likely to be able to afford it any time soon. It presently does not allow for modification of mortgages, which is governed by state law and HAMP.