What is a “Cure and Maintain” Chapter 13 Bankruptcy?

There are many people out there struggling to pay off their debts, bills, rent and mortgages, especially in the midst of the global COVID-19 pandemic. Bankruptcy is usually a good option for people who are underwater and struggling to pay off their debts. 

And even before the pandemic, bankruptcy was very common. In the year 2018 alone, there were over 750,000 bankruptcies filed across the United States. And it’s not surprising. The average American currently has about $38,000 in debt, according to recent studies. And according to a study by the American Journal of Medicine, about 62 percent of all bankruptcy cases are caused by medical expenses and 92 percent of people filing bankruptcy due to medical debt have over $5,000 in medical debt alone. But what exactly is a “cure and maintain” Chapter 13 bankruptcy?

What is a Chapter 13 bankruptcy?

Also known as a reorganization bankruptcy, a Chapter 13 bankruptcy includes developing a payment plan of about three to five years in order to repay your debts. If you are able to stick to your repayment plan and pay off all of your debts over the course of three to five years, then you are allowed to keep all of your property and discharge your debt. You need access to certain documents to verify that your petition is correct, so before you file bankruptcy, make sure to complete the following information:

• A list of all of your property. When listing all of your property, you should include any real estate and all of your personal items.
• A detailed list of your monthly living expenses. You will need to list out all of your monthly living expenses, including shelter, transportation, taxes, food, clothing and medicine. These expenses need to be reasonable and necessary for the maintenance of your household and family. You can’t include any luxury items or services in this list.
• Your source of income, how often you are paid and how much you are paid. This information is needed from you and your spouse if applicable. This information is required from your spouse, even if your spouse is not filing bankruptcy with you, since the court, trustee and creditors need to figure out your household financial situation.
• A list of your creditors. In addition to listing all of your creditors, you will also need to detail the nature of the debt, the amount of money owed to each creditor and their mailing addresses.

When you are filing for bankruptcy, you will be required to attend a meeting of the creditors in court, also known as a 341 meeting, because the meeting is necessary, according to section 341 of the bankruptcy code. If you fail to attend this meeting, your bankruptcy case will likely be dismissed. You are allowed to have your bankruptcy attorney with you at the meeting. In fact, we would strongly recommend bringing a bankruptcy attorney with you to this meeting.

Benefits of filing for a Chapter 13 bankruptcy

Chapter 13 bankruptcies provide people with a number of benefits, especially over the other bankruptcy option of liquidation under Chapter 7. One of the biggest benefits is that Chapter 13 allows people to save their homes from foreclosure. By filing for a Chapter 13 bankruptcy, debtors can stop their homes from being foreclosed on and are able to cure delinquent payments over the months and years. That being said, debtors are still required to make all of their mortgage payments on time during the Chapter 13 plan. 

Another huge benefit of the Chapter 13 bankruptcy is that debtors are able to reschedule secured debts, besides their primary home’s mortgage, and extend the payments over the course of the Chapter 13 plan, which can decrease the payments for debtors. Chapter 13 also protects third parties and might protect co-signors who are liable. Chapter 13 is also an excellent option, because it acts like a consolidation loan where the debtor makes the plan payments to a middleman known as a Chapter 13 trustee who then distributes the payments to creditors. People have no direct contact with creditors while under the protection of a Chapter 13 bankruptcy. 

Who is eligible for a Chapter 13 bankruptcy?

Even if they are operating an unincorporated business or self-employed, any person is eligible to file for a Chapter 13 bankruptcy, as long as their unsecured debts are less than $394,725 and their secured debts are less than $1,184,200. These debt amounts are changed from time to time to adjust for consumer price index changes. Keep in mind that corporations and partnerships are not allowed to file for Chapter 13 bankruptcies but instead can file for Chapter 11 bankruptcies. Another eligibility rule to know is that a debtor cannot file for any type of bankruptcy if a previous bankruptcy case was dismissed during the prior six months due to the person’s failure to appear before the court or comply with court orders.

What is a “cure and maintain” Chapter 13 bankruptcy?

For long term debts, any debts where you would still need to make payments after the three to five years of a Chapter 13 bankruptcy, section 1322(b)(5) provides people with the option of curing any default payment or paying back a past due balance and maintaining the current monthly payment. 

The cure and maintain plan is a crucial exception to the typical Chapter 13 bankruptcy rule that secured creditors’ claims are paid off by the Chapter 13 plan, an important document in a Chapter 13 bankruptcy that offers the amount that the person filing needs to pay to the creditors. The debtor proposes the Chapter 13 plan, which needs to meet the bankruptcy code requirements and be confirmed by a bankruptcy judge. The cure and maintain plan exception is mostly used for mortgage debts.

If you are looking into filing a “cure and maintain” Chapter 13 bankruptcy, the Van Horn Law Group can help. Contact us or visit our website to learn more here.