Chapter 13 Overview

Bankruptcy Chapter 13

Who files for Chapter 13 bankruptcy?

The following individuals either have to or choose to file under Chapter 13:

1. People who make too much money, don’t qualify for Chapter 7 and, in the eyes of the bankruptcy court, have something left over at the end of the month after covering payments for all of their necessities of life. For example, if you have $40,000 in debt and you have $200 left over each month (in the eyes of the bankruptcy court), you would have to pay that $200 for five (5) years, or a total of $12,000. The difference between what you pay ($12,000) and what you owe ($40,000) is forgiven at the end of the five years.
2. If you are behind on your mortgage or are way behind on your child support payments and need up to 60 months to get caught up.
3. If you have a second mortgage on your home and the home is worth less than the balance of your first mortgage. Here, in a Chapter 13 case, in addition to all of the other debts that you could wipe out, you can also wipe out the second mortgage.
4. You need a guaranteed low or no interest repayment plan to repay current state and federal income taxes.
5. You need the protection of the bankruptcy court for up to five years.
6. You have filed for bankruptcy and received a discharge within eight (8) years and have run into problems where you need bankruptcy court protection.

What are the benefits of a Chapter 13 case?

There are many, as follows:

1. If you can’t wipe out your unsecured debt like credit cards in a Chapter 7 case because you make too much money, then you have to file under Chapter 13. In a Chapter 13 case, you would only have to pay each month that amount you have left-over after covering all of your necessities of life.
2. If you make so much money that you have to repay all of your unsecured debt, in a Chapter 13 case you would get an automatic “debt consolidation” plan. You would have up to 60 months to repay AND no matter what the credit card company says, you would only have to pay between 0 and 5% interest. A Chapter 13 case is, frankly, the best debt consolidation plan available. Obviously, it is better to simply wipe out all the credit card debt in a Chapter 7 case and be done with the process in 100 days, but if you make too much money and don’t qualify for Chapter 7, Chapter 13 offers the best repayment or consolidation arrangement.
3. Creditors cannot call you or anyone else, send you mail, sue you, levy on your bank account, garnish your wages or do take any other collection activities against you for the time you are in bankruptcy. Bottom line: peace of mind.
4. For a creditor to get some or all of their money, they have to file what is known as a “proof of claim.” If they don’t, then they don’t get paid anything. For example, assume $50,000 in debt but a creditor holding $25,000 of that debt does not file a proof of claim. They get nothing. If you’re required to repay all of your debt, then by that creditor not filing you now only have to repay $25,000. Huge potential savings- right out of the gate.
5. If you have a second mortgage and the house is worth less than the first mortgage, you will leave the bankruptcy only owing on the first mortgage. Couple that with wiping out all or most of your credit cards and other unsecured debt and you’ll be in a much better place financially.

How long does a Chapter 13 case take and how much more expensive is it?

Case takes between three (3) and five (5) years to complete. The court sets the “presumptive” fee at $3,600 for individual and $4,000 for business related cases. Total fees are negotiable. You do not have to pay the entire fee up front to get your Chapter 13 case filed. The amount of each down payment varies.

What happens with a car payment in a Chapter 13 case?

If you have owned the car for more than 910 days, the new loan amount will equal the vehicle’s value and the interest rate will be reduced to under 5%. Example: Loan of $20,000. Value $10,000. Loan more than 910 days old. Interest rate 15%. In a Chapter 13 Plan, you would repay $10,000, paid over five (5) years at under 5% interest.

Couple the new car loan with stripping off a second mortgage on your home and repaying credit cards at 5% or less, and probably repaying only a portion, and you can see how a Chapter 13 case can radically better your finances.

What is the process in filing a Chapter 13 case?

The steps would be as follows:

1. Schedule a free consultation.
2. If you decide to go forward, we will go over the entire bankruptcy petition with you. We do not use questionnaires.
3. At the end of the first meeting, we will send you an e-mail with a final list of information and documents that we need to file the case.
4. At the second meeting, the petition is finalized, reviewed and signed. The case is typically filed within 1 to 2 days of final review.
5. Prepare and file the Chapter 13 Plan. The Plan identifies who you will pay, how much you will repay them and at what interest rate.
a. Your monthly payment for the following items is generally equal to 1/60th of the total.
i. Back taxes. Typically interest required at 5% or lower.
ii. Back child support. Typically interest required at 5% or lower.
iii. Home loan arrearages. Typically no interest required.
iv. Car payment arrearages. Typically no interest required.
v. Unpaid attorney’s fees. No interest required.

b. Calculate amount owed for your car or car payments.

i. If your car loan is more than 910 days old, new loan amount equals the value of the car and the interest rate reduced to 5% or below.

c. Factor in any lease payments.
d. Factor in payment to unsecured creditors IF you have money left over after covering the costs for all of your necessities of life.
e. Identify any property subject to a loan that you want to return to the lender. Pay nothing on that debt.
f. Let the court know that you plan on stripping off a second mortgage if the value of your house is less than the balance on your first mortgage.

6. Roughly one month after the case is filed, there is a short hearing with a court official. Basically, the official, known as a trustee, wants to confirm that you have listed all of your assets, debts, income and provided all other necessary information and supporting documentation. In almost all of our cases, the meeting with the court official, or trustee, lasts between three and five minutes.
7. If the trustee accepts the petition as filed, then a hearing will be set to have the judge confirm your repayment plan. Often, however, the trustee will require additional information and will continue the hearing.

What can I expect at my free initial consultation and typically how long does it take?

We will answer your questions, let you know what your options are and discuss with you how much it would cost to pursue each of your options. In order to do this, we obtain information from you on the following topics and then take the time necessary to make sure we understand fully your situation with regards to each of these topics:

1. Your total income from all sources.
2. The nature and amount of your debts.
a. Do you own a home?
b. Do you have a car payment?
c. What type of debt you have.
d. Whether any of that debt was incurred within the last 90 days.
e. Whether you have borrowed any money from family and, if so, whether you have repaid any of that borrowed money within the last year.
f. Whether you owe any back taxes or have student loans.
g. The nature and value of any property that you own or have an equity interest in.

The typical initial consultation lasts anywhere from 30 to 45 min.

Are you ready to take that first step onto the road to financial well-being?

Call today to schedule a free consultation to discuss the particulars of your case. We will take the time on the phone to get a clear understanding of your case, and if we can help you, work with you to find a time as soon as possible to have you come in to discuss your case in greater detail with an experienced bankruptcy attorney.