Debt repayment in chapter 13 may be an alternative to chapter 7 bankruptcy whenever the debtor's current monthly income exceeds the state median income for the respective size of household or the debtor wishes to repay certain debts over a longer period of time (mortgage arrears and tax liabilities). Generally, the life of the chapter 13 plan is three to five years. The chapter 13 plan payment must equal the debtor’s ‘monthly disposable income’ — the portion of the monthly income not required to meet the ‘necessary needs’ of the debtor and his/her dependents.
In cases of impending foreclosures, homeowners are allowed to include their mortgage arrears in the Chapter 13 plan. If the value of the home is below that of the first mortgage on the property, the debtor may be able to discharge a second mortgage or any other junior lien(s) against the home.
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