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Chapter 13

Chapter 13 bankruptcy is a consolidation plan based on what a debtor can actually afford over the course of 3 to 5 years. Often, amounts paid back are less than the full amount owed. The tests in a Chapter 13 bankruptcy are similar to the tests listed above in a Chapter 7 bankruptcy. However, in a Chapter 13 bankruptcy, instead of showing that the person filing bankruptcy cannot afford to pay anything, the test shows how much a person can afford after deductions for reasonable, necessary expenses. This means that the Court will look at your income less what you need to live and set a payment that you can afford. Chapter 13 bankruptcy also has some additional benefits:
Chapter 13 bankruptcy can allow you to modify the terms of your secured contracts. You can reduce your interest rate to prime plus a risk factor of between 1% and 3%. If you are paying a high interest on a car, this can save you thousands of dollars.
Chapter 13 bankruptcy allows you to catch up on your mortgage. If you are behind on mortgage payments, a Chapter 13 bankruptcy allows you to freeze the amount you are behind and pay it back over the years.
Chapter 13 bankruptcy will also freeze IRS interest and penalties, allowing you to pay back what you owe the IRS as of the date you file your case, and not a penny more.