Chapter 13 bankruptcy is the type of bankruptcy you file if you do not qualify to file a chapter 7, or if filing a chapter 7 would not be as beneficial for you as filing a chapter 13 would be based on the types of debts you have.  A chapter 13 requires paying certain debts.  Based on timing (you filed another bankruptcy recently), or your income (you make too much money), your assets (you own property you could sell for a profit but do not want to, or you are behind on the payments on property you wish to keep), or the types of debts you have (debts that could not be discharged or avoided in a chapter 7, or a delinquency on a mortgage or car note) you must pay something to your creditors before receiving a discharge on the rest of what you owe them. 

 

          A CHAPTER 13 ENTAILS A BUNDLED MONTHLY PAYMENT TO THE COURT FOR 3 TO 5 YEARS (36-60 MONTHS), WHICH IS BASED ON YOUR INCOME, EXPENSES, ASSETS, AND DEBTS, AND CALCULATED BY SPECIAL SOFTWARE, DESIGNED TO PAY BACK CERTAIN DEBTS OR A CERTAIN PERCENTAGE OF YOUR DEBTS, NOT NECESSARILY ALL OF YOUR DEBTS.  This monthly payment is referred to as your plan payment because it is based on your chapter 13 plan presented to the court when you file which lays out who will get paid what and when, and is later confirmed by the court.  This is why chapter 13 is referred to as a "payback plan bankruptcy."  Though it is a payback plan, it is very rare that someone filing a chapter 13 is required to pay back all of their debts, and even in those rare cases with 100% payback plans the chapter 13 comes with advantages that make it worth it. 

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          The monthly payment to the court is designed to pay any debts that you must pay back (such as car loans, mortgage arrears, mortgage payments on rental properties, domestic support arrears, and priority tax debts), the statutory attorney’s fees and court costs (we receive a portion of your monthly payment to the court, and 7% of your monthly payment goes to the court), and potentially any amounts beyond that which you may be required to pay based on your income or the equity in your assets.  The only separate payments you make while in a chapter 13 are your regular mortgage payments on your home (your residence), and you also continue to pay your regular utilities and other bills, such as electric and cell phone.

 

          Chapter 13 therefore is a serious commitment for several years.  One downside with a chapter 13 is the higher attorney fees and court costs.  You will also face limitations obtaining credit and financing while in a chapter 13.  Many people file chapter 13 because it is their only bankruptcy option.  Though for some people it actually makes more sense financially to file a chapter 13 instead of a chapter 7, due to the benefits only available in a chapter 13 - such as reduced interest rates, loan balance reductions (cram downs), and discharge of certain debts that cannot be discharged in a chapter 7.
 

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REASONS TO CHAPTER 13 BANKRUPTCY INSTEAD OF A CHAPTER 7

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YOU'VE FILED A BANKRUPTCY PREVIOUSLY

          If you have previously filed a bankruptcy then chapter 13 may be your only option at the moment.  

 

Time limits for filing a bankruptcy after previously filing a bankruptcy and receiving a discharge:

• 8 years from date of filing a chapter 7 before filing a new chapter 7

• 4 years from date of filing a chapter 7 to file chapter 13 that is eligible for discharge*

• 6 years from date of filing a chapter 13 to file a chapter 7**

• 2 years from date of filing a chapter 13 to file chapter 13 that is eligible for discharge**

 

          *You may file a chapter 13 bankruptcy at any time, the question is whether you are eligible to receive a discharge.  There may be reasons to file a chapter 13 that is not eligible for discharge, such as stopping a foreclosure or repossession, stopping garnishments, or directing money to certain debts until the time has passed that a new bankruptcy can be filed that is eligible for discharge.

 

         **Time limits may be shorter depending on what was paid in prior chapter 13.

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YOU MAKE TOO MUCH MONEY

          Chapter 7 bankruptcy has strict income limits, if your income is too high for a household of your size, you will not qualify to file chapter 7.  If you earn below that limit you will qualify to file.  Household size is the number of people that live in your house.  Typically household size includes you, your spouse, and your children, but may also include other members of the household, depending on the circumstances.  Not everyone living in a house counts towards the household size, nor does everyone's income in the household count towards the household income.  Household size is a determination a lawyer should make.

          The income here is gross income, what you earn on paper before deductions and taxes.   Your gross income for this purpose is the average of all your income for the last six months.  Only certain expenses, such as child support, are deducted from that average.  

 

The current income limits for chapter 7, updated as of November 1, 2023, are:

          Household of 1 - $57,248

          Household of 2 - $73,751

          Household of 3 - $87,722

          Household of 4 - $101,726

          *Add $9,900  for each additional person in the household (ex. 5 = $111,726).

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          These numbers can be found on a  chart  issued by the United States Trustee's Office, based on the Census Bureau's Median Income Data, updated every 5-6 months, which may be found here on the Department of Justice's website.  Household size and household income are determinations a lawyer should make.  If you are over the gross income limit then your only bankruptcy option would be a chapter 13.

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YOU HAVE TOO MUCH EQUITY IN YOUR ASSETS

          Because of the exemption laws, you are only allowed to have a certain amount of total value in your assets, or in any one specific asset such as your house or car when you file a bankruptcy.  If you have too much equity in assets, instead of risking losing them by forced liquidation in a chapter 7, in a chapter 13 you may keep those assets in exchange for paying to the court over the course of the bankruptcy the amount the court would have received from liquidation.  What you pay to the court is distributed to your creditors, so chapter 13 is designed to try to give your creditors at least something if you have unprotected assets you'd like to keep.

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YOU ARE BEHIND ON THE PAYMENTS ON YOUR HOME OR YOU ARE FACING A FORECLOSURE SALE

          If you are behind on the payments on your home you must file a chapter 13 if you want to keep you house or car.  If you are behind on your mortgage payments chapter 13 will force your mortgage company to treat your loan as current, and allow you to go back to making your regular monthly mortgage payment, as well as pay back the arrears over 36-48 months, free from accruing interest and late fees, through your monthly payment to the court.  At the end of the chapter 13 you will be current on your mortgage.

          If you are facing an upcoming foreclosure sale, and a modification has not been approved and refinancing is not an option, filing a chapter 13 at least a day before the scheduled sale will stop the foreclosure sale.

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YOU ARE BEHIND ON THE PAYMENTS ON YOUR CAR, OR YOU ARE FACING A REPOSSESSION, OR YOUR CAR HAS JUST RECENTLY BEEN REPOSSESSED AND YOU WANT IT BACK

          If you are behind on your car payments chapter 13 will force your car lender to treat your loan as current, and allow you to pay your car loan balance in full though your monthly payments to the court.   In a 60 month bankruptcy the option of stretching the loan to 60 months could potentially help lower the monthly payment.  Interest rates on vehicles change when you file a chapter 13 bankruptcy to 4.75% (potentially lowering the interest rate, but sometimes increasing it!).  However, at the end of a chapter 13 you will own your car(s) outright because you paid the loan(s) in full through the monthly payments.  

          If you have received a right to cure letter from your car lender you have 20 days to make up the delinquency or the lender has the right to repossess.  After that a lender may repossess a vehicle wherever it can be found, including private property.  Filing a chapter 13 will immediately stop the right to repossess, no matter the delinquency.  Chapter 13 will also force a creditor to return a repossessed car to you if filed within 10 days of the repossession or before the car is sold at auction, but proof of insurance and tow and storage fees may still be required! 

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WHAT WOULD YOUR MONTHLY PAYMENT BE?

          What your monthly payment will be can only be determined after a consultation and after we receive all the documents we ask for, as determining this payment requires a lengthy calculation that takes many factors into consideration.  We basically have to prepare the entire bankruptcy and the monthly payment is the last thing we can determine.  Monthly payments start exactly 30 days after filing a case and continue for 36 up to 60 months.

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          Call (314) 896-1999 if you have any questions or to schedule a consultation!

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