In a nutshell, Chapter 13 is a chapter of the bankruptcy code that allows you to restructure your debt and keep assets that you might lose in a Chapter 7. If you have assets that are unprotected in a Chapter 7, the trustee has the right to liquidate those assets and distribute the proceeds among your creditors. Chapter 13 is designed to allow you to keep all or most of your property and allows you to pay their value to the creditors over the life of the payment plan (typically 3 to 5 years). Example: If you had a car worth $5,000 that was unprotected, the Chapter 7 trustee could take the car, sell it and distribute the $5,000 among your creditors. In a Chapter 13, you would pay $5,000 into the plan over 3 to 5 years but you would keep your car.
Some people have an issue with what they perceive to be "paying for their car again." To those I usually ask: "If your creditors had approached you a year ago and offered to settle all of your debt with no tax consequences for $5,000 - what would you have done?" Everyone would have jumped on the offer. Then they realize that it's no different here. The settlement amount is being determined by your asset - nothing more.
Sometimes the Chapter 13 payment amount is not determined by assets but by the disposable monthly income that is shown on the means test. Whatever amount is higher is what gets paid into the plan.
A simplified way of looking at a Chapter 13 is that it's a Chapter 7 with a payment plan and you usually don't lose any property. For some people, losing a car would cause them to lose their job and it's better to have a plan and get rid of your debt then to lose your car in a Chapter 7.
Call today to find out if either chapter of the bankruptcy code can help you get out of debt and live stress-free again. We have free consultations in our Davie and Coral Springs office.