Palatine Bankruptcy Lawyer Talks About Chapter 13

There is another chapter of the bankruptcy code that is important, and that is chapter 13.  Chapter 13 is a reorganization plan whereby you pay either all or a percentage of the debt back to the creditors over the next three to five years.  You do that through a monthly payment to a chapter 13 trustee. 

A chapter 13 trustee, much like a dealer in poker, is going to pay the creditors a little bit per month over the next three to five years.  There’s a hierarchy as to who gets paid first and who gets paid how much.  Mortgage arrearages are going to be paid back 100 percent, and they’re going to be paid back relatively quickly.  Auto payments and other secured debt are going to be paid as well, and they’re going to be paid all or a percentage of their debt. 

Unsecured creditors like credit cards, medical bills, personal loans, utility bills, debt for some type of service are paid back toward the end of the three to five year payment plan, and they are often paid at less than 100 percent.  The trustee charges a fee anywhere from three to six percent as an administrative cost because they need that for the overhead to pay the creditors, support staff, and all the things they need to make their office run efficiently. 

The creditors often receive little or no interest on their debt.  This is great, because a person who owes credit card debt at 29 percent can pay it back at 0 percent over the next three to five years. 

That three to five year payment plan gives the individual cushion.  It gives the individual the ability to pay it slowly.  It gives the individual the ability to function properly by having a solid budget whereby a certain amount for rent, food, clothing, utilities, gas, transportation can be put aside, and the trustee will allow a certain amount of money each month to go toward the budgeted items.  It is only the difference between the income and the expenses that the trustee requires to be paid each month. 

So, provided someone has a surplus of income per month and they can put that surplus toward a chapter 13 trustee, and if that amount can pay off the debt or a portion of the debt within three to five years, chapter 13 can be a very successful reorganization plan for an individual. 

Visit Palatine Bankruptcy Lawyer or call direclty at (847) 520-8100.