THE FIFTEEN MOST-ASKED
QUESTIONS ABOUT CHAPTER 13 BANKRUPTCY
1. Q: What is Chapter 13?
A: A section of the United States Bankruptcy Code that allows
individuals with regular income propose a plan to re-pay creditors.
2. Q: Can Chapter 13 stop a house foreclosure?
A: Yes, and it also stops lawsuits, wage garnishments and other
forms of debt collection.
3. Q: Once a house foreclosure is stopped
by Chapter 13, what happens with the mortgage?
A: You begin to make regular monthly mortgage payments again
“outside” the Chapter 13 plan. The arrears/back payments are
paid re-paid over the life of the Chapter 13 plan over a period
of 3 to 5 years.
4. Q: What about other debts?
A: You make a monthly payment to a trustee, who then pays off
back payments on the mortgage, car loan and other debts, such
as credit cards and taxes. You do not pay off the credit cards
or taxes yourself.
5. Q: How long to the trustee payments
A: From 36 to 60 month, depending on what you can reasonable
afford and how much debt has to be paid re-paid.
6. Q: Does the mortgage company have
to agree to my filing a Chapter 13 bankruptcy?
A: No. As long as the plan to reinstate the mortgage is within
legal limits (and this is why legal representation is needed),
the mortgage company has little say in the matter.
7. Q: Why Chapter 13 and not Chapter
A: Most mortgage companies and banks will allow you to reinstate
your mortgage only if you pay all of the back payments at once.
If you cannot afford to do that, Chapter 13 give you a chance
to pay over a period of years. Chapter 7 does not give you this
chance to repay and retain your property as Chapter 13 does.
8. Q: What if I am behind on a car loan?
A: Like a home mortgage, car loan defaults can be cured under
9. Q: Are there any debt limitations
for a Chapter 13?
A: Yes. To be eligible to file under Chapter 13 of the bankruptcy
code, you cannot have more than $871,550.00 in secured debt
(mortgage/car loans) and $290,525.00 in unsecured debt (credit
cards). If you have more than that, you should consult a lawyer
about Chapter 11 or other options.
10. Q: If I file Chapter 13 and later
decide I want to sell my house, can I?
11. Q: Will Chapter 13 ruin my credit?
A: If you are behind on your bills and mortgage, or your house
is in foreclosure, your credit has already been affected. Chapter
13 can let you save your house and pull yourself out of the
financial mess and put you back on a road to financial rehabilitation.
12. Q: Someone contacted me and told
me that they would lend me money or refinance my mortgage so
that I would not have to “go bankrupt”. Is refinancing not a
A: It is, if you do not mind paying ten points plus 18% (or
more) interest. Also, ask the lender if there is a “balloon”
payment. If there is a balloon payment, ask the lender how much
the payment will be, when it will become due and where are you
suppose to get the money to pay it. If you want to be absolutely
satisfied, ask them for the names and telephone number of five
(5) people in your area who legitimately refinanced balloons
coming due on their loans in the past year. Then call the people
up and ask them if they were satisfied with the lender’s service.
13. Q: An investor told me that he’d
buy my house so I would not have to “go bankrupt”. What is wrong
with that route?
A: Nothing, if you want to sell your house for less than it’s
worth. Find out exactly how much money you will walk away with
from the deal, and ask: with this money and my present credit
rating, will I be able to buy another house or find someone
who will rent to me? Chances are it is better to hang on to
your current house.
14. Q: Is there a time limit to filing
a Chapter 13?
A: It is best to file a Chapter 13 before a foreclosure judgment
is entered. A foreclosure judgment may be entered soon if you
have already received a foreclosure summons and complaint from
the Sheriff or in the mail. It is best to call a lawyer fast
if this has occurred. Chapter 13 will be of a little less use
if you file after a foreclosure judgment is entered, and probably
of very little or no use if the Sheriff has sold your house
at a foreclosure sale more than ten days ago.
Q: How do I find out more?
A: Call the Law Offices of Jae Y. Kim at (201) 218-5558 to schedule
an appointment. When you come, bring copies of your and your
spouse’s most recent pay stub, bills, lawsuit papers and other
documents related to your finances and mortgage.