CHAPTER 13 BANKRUPTCY
Chapter 13 bankruptcy is the type of bankruptcy you file if you cannot file a chapter 7 bankruptcy, or if filing a chapter 7 would not be as beneficial for you as filing a chapter 13 would be. A chapter 13 entails a monthly payment to the court, for 3 to 5 years, to pay back certain debts, not necessarily all of your debts. Chapter 13 is a long, serious commitment. One downside with a chapter 13 is the higher attorney fees and court costs over time. You will also face limitations getting credit and financing while in a chapter 13. Many file chapter 13 because it is their only bankruptcy option. Though for many 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.
DO YOU HAVE TO PAY BACK ALL OF YOUR DEBTS IF YOU FILE A CHAPTER 13 BANKRUPTCY? MOST LIKELY NO! However, based on timing (you filed another bankruptcy recently), or your income (you make too much money), or 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 want to keep), you must pay something back in order to receive a discharge.
HOW IT WORKS
Chapter 13 bankruptcy entails a making a bundled monthly payment to the court to pay back 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 the court takes roughly 7% of your monthly payment), and potentially any amounts beyond that which you may be required to pay based on your income or the equity in your assets. Your monthly chapter 13 payment is called your "plan payment" because the payment is based on a repayment plan that is presented to the court when your case is filed, which is later confirmed by the court and paid accordingly. Your plan determines which of your creditors are paid, how much they are paid, and in what order. The only separate payments you make while in a chapter 13 are your regular mortgage payment on your residence (if applicable), and you also continue to pay your regular utilities and other bills, such as cable and cell phone, as you normally would.
REASONS TO CHAPTER 13 BANKRUPTCY INSTEAD OF A CHAPTER 7
YOU FILED 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 refiled that is eligible for discharge.
**Time limits may be shorter depending on what was paid in prior chapter 13.
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. The income here is gross income, what you earn before deductions and taxes. Your gross income for this purpose is the average of all your income combined for the last six months. Certain expenses, such as child support paid, are deducted from that average.
The current income limits, updated as of April 1, 2020, are as follows:
Household of 1 - $49,086
Household of 2 - $61,519
Household of 3 - $73,857
Household of 4 - $92,129
*Add $9,000 for each additional person in the household (5 = $101,129 income limit).
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.
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 and income are determinations only a lawyer should make.
YOU HAVE TOO MUCH EQUITY IN YOUR ASSETS
Because of the exemption laws, you are only allowed to have a certain amount of value total in your assets, or in any one specific asset, such as your house or car. If you have too much equity in assets, instead of losing them by forced liquidation in a chapter 7, you may keep them in a chapter 13, in exchange for paying to the court the amount that is over exempt over the course of the chapter 13 bankruptcy.
In a chapter 13, in exchange for not liquidating your non-exempt assets to pay your creditors, you must instead pay your creditors at least the amount that they would receive if your property was liquidated in a chapter 7.
YOU ARE BEHIND ON THE PAYMENTS ON YOUR HOUSE OR CAR
If you are behind on the payments on your house or car 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 time, free from interest and late fees, through your monthly plan payment to the court. 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 over the course of 3 to 5 years (potentially stretching the loan out and lowering the payments), at an interest rate of 6.25% (potentially lowering the interest rate), through your monthly plan payment to the court. At the end of a chapter 13 you own your car(s) outright because you pay the loan(s) in full.
YOU ARE FACING A FORECLOSURE SALE
If you are facing a foreclosure sale date, and modification has not been approved, filing a chapter 13 will stop the foreclosure sale and allow you to keep your home. Chapter 13 will cancel the sale if filed at least the day before. Chapter 13 allows you to go back to making your regular monthly mortgage payment, as well as back the arrears over 3 to 4 years, free from interest and late fees, through your monthly plan payment to the court.
YOU ARE FACING A REPOSSESSION, OR YOUR CAR HAS JUST RECENTLY BEEN REPOSSESSED AND YOU WANT IT BACK
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. 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. 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 over the course of 3 to 5 years (potentially stretching the loan out and lowering the payments), at an interest rate of 6.25% (potentially lowering the interest rate), through your monthly plan payment to the court. At the end of a chapter 13 bankruptcy you own your car outright because you pay the loan in full through your monthly plan payments.
CHAPTER 13 WOULD ACTUALLY BE A BETTER CHOICE FOR YOU FINANCIALLY THAN A CHAPTER 7, EVEN CONSIDERING THE HIGHER ATTORNEYS FEES AND COSTS OVER TIME
Lower Interest Rates
Pay Debts That You Cannot Discharge Over Time, at Lower Interest Rates
WHY CHAPTER 13 IS REFERRED TO AS A "PAYBACK PLAN" BANKRUPTCY
Chapter 13 bankruptcy is often referred to as a "payback plan" bankruptcy because it requires making a payment to the court each month to pay back some of your debt. What you pay back is determined by the plan you present to the court, known as your "Chapter 13 Plan" which is why chapter 13 is commonly a referred to as a “payback plan” bankruptcy and your monthly payments are referred to as "plan payments."
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. Monthly payments start exactly 30 days after filing a case and continue for 36 to 60 months.
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Call (314) 896-1999 to set up a free appointment to discuss your bankruptcy options!