Chapter 13 Bankruptcy

Chapter 13 cases are designed as a repayment bankruptcy which protects debtors from all collection activities that would otherwise potentially occur during the period that you are under the protection of the automatic stay. And the completion of your bankruptcy, you would be granted a discharge of all debts that qualify for discharge and which were not paid in the plan.

In a chapter 13 case, debtors are often required to be “wage earners” due to the fact that there needs to be sufficient income to make the plan payments. Hence the reason for the specific type of bankruptcy being called a “wage earners bankruptcy,” and a good attorney for bankruptcy can help you use the power of the court to impose plans specific to managing your debts on your creditors. The creditors are forced to accept or object, and this stops interest on your debts such as credit card interest. Bankruptcy courts enforce these chapter 13 plans through the management of a trustee for chapter 13 administration and they will provide you with legal cover for uncooperative creditors. In some cases, where there is a violation of the automatic stay, our law firm will pursue adversary proceedings against the reluctant creditors who are attempting to break the law.

Reasons for Filing Chapter 13 Bankruptcy

Some of the most common reasons for filing for protection under the section of the bankruptcy code known as chapter 13 include but are not limited to the following situations. Many of these situations may sound familiar to you, but others are highly specific to a situation that would warrant a chapter 13 case to help you manage your situation and protect yourself. Many of the cases that involve protection of assets.

  • Facing Foreclosure? Ch 13 bankruptcy can stop foreclosure and save your home!
  • Facing Repossession? Ch 13 bankruptcy can prevent repossession of your vehicle!
  • Facing a lawsuit? Through chapter 13 bankruptcy, you can force the creditor to accept a monthly repayment plan.
  • Need a Single Monthly Payment? Filing chapter 13 cases allows you to force unsecured creditors to accept payment based on your income.
  • Owe More than your Vehicle is Worth? In cases where you have owned your car or other vehicle for more than 2.5 years, you may qualify for a cramdown which would allow you to pay only the retail value of the car back to the creditor over the course of the chapter 13 repayment plan.

Benefits of Bankruptcy Through Chapter 13 Bankruptcy Attorneys

The elimination of debt in chapter 13 covers debts which otherwise might not very well be discharged through chapter 7 bankruptcy. Hence, this bankruptcy tool can be powerfully wielded for those debtors looking to get control and put their finances back on track. The result from a chapter 13 case is also viewed less negatively by certain future prospective creditors due to the fact that it shows you did pay back portions or all of your debts.

Chapter 13 vs Chapter 7 Bankruptcy

Chapter 13 bankruptcy allows the debtor an extended amount of time for debts which have come due or become severely past due. In a chapter 7 case, you are not provided the opportunity to catch up debts, whereas a chapter 13 allows a monthly payment that can catch up things like mortgage arrears. IRS debts are included, other recent taxes like property tax, or even back child support would be included automatically in a chapter 13 case. This will cure mortgage defaults, eliminate interest on credit card balances, and still allow you to move forward. It will also allow for clearing of all or portions of liens which exceed the underlying asset’s value such as the case with a bankruptcy cramdown.

Contrary to what is described about debt management companies, a chapter 13 plans must be approved by the court and must be opposed or a valid objection must be entered by creditors not agreeing with the plan. Hence, while these other companies have no teeth to enforce their plan for a repayment or settlement of the debt, a chapter 13 bankruptcy comes under the full weight and measure of federal bankruptcy court. Creditors cannot simply say that they do not want to be bound by a chapter 13 plan. It is often described as a court ordered debt management plan that is based on your income and expenses.

Commonly Asked Questions about Chapter 13 Bankruptcy

FAQ: Who can file chapter 13 bankruptcy?

Unlike chapter 7 bankruptcy, there isn’t a maximum income to file chapter 13 bankruptcy, but rather in some cases, there could be a minimum income. This is because there is a monthly payment and it must be determined by the court to be feasible. Our law firm will help you in determining whether you qualify for a chapter 13 bankruptcy plan to handle your required debts.

It may become reasonable to file chapter 13 bankruptcy if:

  • A debtor owes debts which are not held to be dischargeable through Chapter 7 bankruptcy ( e.g. some IRS debt, some other taxes, or aliminory or child support)
  • A debtor has liens which exceed the value for their underlying collateral that is being used to secured the balance of the debt
  • A debtor is behind on vehicle or mortgage payments
  • A debtor has assets which cannot be protected and exempted in a chapter 7 bankruptcy. (For example, if you were seeking bankruptcy protection and realized that stock options which you have with your emplower were not exempt, filing bankrupcy would result in the loss of that asset. But if you chose chapter 13 bankruptcy, then you could pay the equivalent value through the repayment plan to your unsecured creditors, thus allowing you to keep those stock options and not have them simply liquidated.)
  • A debtor makes more than the allowable income thresholds to qualify for Ch. 7 bankruptcy.

How is My Chapter 13 Bankruptcy Plan Payment Calculated?

A Chapter 13 payment plan is not necessarily going to pay all of your debts. The plan can specifically often pay little to almost none of the actual debt and this number is calculated according to your income and your expenses. Fractional debt payments through chapter 13 plans are arrived at after reviewing the extent of household income, then after expenses for living and for the living expenses of dependents are taken into account, a remaining “disposable income” would hypothetically be paid into a pool used to pay your list of unsecured creditors. This means that if you have $5,000 in monthly income, $4,500 in allowable monthly expenses for you and your dependents, then presumable your plan payment would be $500. However, if it turns out that your debts would be completely paid off with a lower payment of $400, then you would not pay your entire disposable income, but rather the amount of money that would satisfy all the creditors who made it to confirmation in the bankruptcy plan.

Can Bankruptcy Stop Foreclosure?

Yes, filing chapter 13 bankruptcy is a very commonly applied tool to prevent a home foreclosure. Through this method, you are afforded the opportunity to catch up the past due portion of your mortgage. This past-due portion of mortgage balances is known as mortgage arrears, and can be run through a chapter 13 bankruptcy plan over time. For example, if you owed a past due balance to your mortgage company of $6,000 then this amount could be stretched over 60 months, resulting in a $100 monthly trustee payment before taking into consideration the percentage charged by the trustee and your bankruptcy fees. Hence in many cases, you might be able to catch up a past due mortgage at the same time that you eliminate other unsecured debt, all while remaining comfortably in your home and not being forced out by a foreclosure sale. Bankruptcy is a powerful tool to stop foreclosure and our bankruptcy law firm has helped tens of thousands of homeowners to save their home and catch it up over time.

Can Chapter 13 Bankruptcy Stop Repossession?

Yes, in many cases, filing chapter 13 bankruptcy can be advantageous in helping you prevent a lender from repossessing your car, truck, motorcycle, or other vehicle. Not only that, but in some cases, you are allowed to lower your original payment by stretching it out over a longer period of time. This could be seen as an effective refinancing of the balance. Additionally, you could also be allowed to cram down the original principal amount if you have owned the vehicle for the required amount of time which is 2.5 years. This bankruptcy cramdown allows you to force the lender to accept a lower amount of payments equal to the vehicle’s current retail value. Hence, if you had a car with a $25,000 balance and you have 3.5 years out of your 6 year term left, and if the actual retail value of the vehicle was only $10,000, then you could lower your monthly payment from $599 on a 20% loan down to $160/month in a 5 year chapter 13 plan payment that requires that only 5.25% interest be paid to the lender and at a significantly lower principal balance amount through the bankruptcy.

If I Want to Repay my Debts, Can Chapter 13 Bankruptcy Help Me?

Yes, the whole premise of chapter 13 bankruptcy is that it involves the repayment of part or all of your debts. But you should remember that as a law firm, we are going to be seeking to put you into the best possible financial situation, and while you may want to pay back your debts, if we see a clear path to a chapter 7 bankruptcy, we will likely be recommending that option unless you have assets to lose. But for those people who are trying very hard to repay their debts, the chapter 13 bankruptcy attorneys in our firm can provide you with the power to force your creditors to accept payments but on your terms.

How Does Chapter 13 Work?

A chap. 13 bankruptcy starts when our bankruptcy law firm prepares and files your petition on your behalf with a federal bankruptcy serving our local area. In order to have proper venue, it will required that you must have resided here in the greater part of the last 6 months or have your largest asset here. At that point, a debtor who selects our law firm will be allowed to put forth a repayment plan that ranges from 36 months to 60 months depending on need and depending on qualifications. If your income surpasses the means test for a chapter 7 bankruptcy, then you will often be required to select a 60 month (5 year bankruptcy) repayment plan.

What Are My Obligations in Chapter 13 Bankruptcy?

Debtors who have chosen to file bankruptcy in the chapter 13 repayment plan will be required to abide by legally-imposed requirements such as providing annual tax returns, setting up a wage with-holding through their employer, and returning required documents and other forms that are prescribed by the bankruptcy code. A bankruptcy filing fee must be paid to the court, and payments will then need to be paid to the trustee according to the established or proposed plan repayment. You will need to often make these payments manually at first, but eventually these are set up as wage withholding by the trustee on behalf of the bankruptcy court. This is a type of set and forget scenario that some debtors prefer, because it amounts to an assurance that your car and IRS debt will be paid in monthly installments in a way that you hardly notice they’re gone. They will come out of your check similar to how other deductions for taxes and insurance are withheld.

Who Should Avoid a Chapter 13 Bankruptcy?

This is a question that some attorneys will not answer for you honestly. The reason is that these attorneys make their money by encouraging bankruptcy clients to move forward with hiring them. On the other hand, when you are working with a reputable, experienced, and powerful bankruptcy law firm such as ours, you will find that we are looking out for your interests and we sleep better at night knowing that we are helping you make the best decision possible.

Often this means that we talk certain clients out of filing chapter 13 bankruptcy in favor of chapter 7 bankruptcy. Other times we recommend against filing bankruptcy entirely in favor of non-bankruptcy alternatives. Such situations could be warranted if the amount of debt simply does not justify doing a bankruptcy.

Oftentimes a prospective client might come to our law firm seeking bankruptcy to catch up a vehicle that is not worth what you will end up paying through the plan. Add to that the court fees, attorney fees, and you can soon be left with a situation where you are barely getting relief. We feel better when we are offering our clients a true, powerful, and refreshing amount of debt relief that helps them feel less stress and helps them move forward instead of spinning their wheels in place.

Leave a Reply

Your email address will not be published. Required fields are marked *