CHAPTER 13 BANKRUPTCY
What is Chapter
13 Bankruptcy?
How Does Chapter
13 Differ From Chapter 7?
When Is Chapter
13 Preferable To Chapter 7?
How Does
Chapter 13 Differ From A Private Debt
Consolidation Service?
Who May File A
Chapter 13?
What Are The
Benefits?
What Are
Some Of The Disadvantages?
How Does It Work
And How Long Does It Take?
Why Do
You Need An Attorney?
Getting Started
WHAT
IS CHAPTER 13?
Chapter 13 is a section of the Bankruptcy
Code which helps qualified individuals,
or small proprietary business owners (NOT
a corporation or partnership), who desire
to repay their creditors but are in financial
difficulty.
Among other things, it offers great opportunities
to pay off past due mortgage (stop foreclosures)
or car payments (stop repossessions) over
36-60 months, giving you time to catch
up and keep your property. Sometimes Chapter
13 is referred to as "reorganization"
or "debt consolidation."
One purpose of a Chapter
13, as opposed to a Chapter 7, is to enable
a debtor to retain certain assets ( for
example, your home) that might otherwise
be liquidated by a Chapter 7 Trustee.
It also provides an alternative to Chapter
7 when you have too much "disposable
income" ( your net monthly income
exceeds your net monthly expenses by too
much) and usually yields much lower monthly
payments than you were previously paying
and ( here's the real benefit) after 36
months, you are done! Your debts are gone.
It also enables you to sometimes
discharge debts that would not be discharged
in a Chapter 7, such as a fraud judgment,
certain tax obligations, fines, penalties,
and other debts. The goal of most any
personal bankruptcy is to discharge your
existing debts by repaying all or a portion
of your debts, and allow you a "fresh
start" on your finances.
In other words, once your
discharge is granted, you no longer need
to repay the debts that were incurred
before you filed your bankruptcy. The
best way to determine which chapter you
should file ( 7 or 13) is to compare your
options under each chapter. This is usually
best done by consulting with an experienced
attorney.
HOW
DOES CHAPTER 13 DIFFER FROM CHAPTER 7?
The basic difference between Chapter 7
and Chapter 13 is that under Chapter 7
the debtor's nonexempt property ( if any
exists) is liquidated to pay as much as
possible of the debtor's debts, while
under Chapter 13 a portion of the debtor's
future income is used to pay as much of
the debtor's debts as is feasible considering
the debtor's circumstances.
As a practical matter, under Chapter
7 the debtor loses all or most of his
or her nonexempt property and receives
a Chapter 7 discharge, which releases
the debtor from liability for most debts.
Under Chapter 13, the debtor usually retains
his or her nonexempt property, must pay
off as much of his or her debts as the
court deems feasible, and receives a Chapter
13 discharge, which is broader than a
Chapter 7 discharge and releases the debtor
from liability for some debts that are
not dischargeable under Chapter 7. However,
a Chapter 13 case normally lasts much
longer than a Chapter 7 case and is usually
more expensive for the debtor.
WHEN
IS CHAPTER 13 PREFERABLE TO CHAPTER 7?
Chapter 13 is usually preferable for a
person who:
- wishes to repay all or most of his or
her unsecured debts and has the income
with which to do so within a reasonable
time
- has valuable nonexempt property or has
valuable exempt property securing debts,
either of which would be lost in a Chapter
7 case
is not eligible for a discharge under
Chapter 7
- has sufficient assets with which to repay
most debts, but needs temporary relief
from creditors in order to do so; or
save your house from foreclosure or your
car from being repossessed.
HOW
DOES CHAPTER 13 DIFFER FROM A PRIVATE
DEBT CONSOLIDATION SERVICE?
In a Chapter 13 case, the bankruptcy court
can provide aid to the debtor that private
debt consolidation services cannot provide.
For example, the court has the authority
to prohibit creditors from attaching or
foreclosing on the debtor's property,
to force unsecured creditors to accept
a Chapter 13 plan that pays only a portion
( sometimes zero) of their claims, and
to discharge a debtor from unpaid portions
of debts. Private debt consolidation services
have none of these powers.
WHO
MAY FILE A CHAPTER 13?
Only an individual with regular income
who owes, on the date you file the petition,
less than $290,525.00 in unsecured debt
and $871,550.00 in secured debts. These
debts must also be noncontingent and liquidated,
meaning that they must be for a certain,
fixed amount ( or easily determinable
amount) and not subject to any conditions
or bona fide disputes.
WHAT ARE
THE BENEFITS?
Chapter 13 protects individuals from
the collection efforts of creditors, permits
individuals to keep their real estate
and personal property, and provides individuals
the opportunity to repay their debts through
reduced payments. You may also be able
to discharge debts in a Chapter 13 that
would be nondischargeable under other
chapters, for example, fraud judgments
and certain tax obligations. Certain tax
obligations or repayments can be made
easier by virtue of the elimination of
interest payments. You may also be able
to get rid of junior liens on your real
property.
WHAT
ARE SOME OF THE DISADVANTAGES?
If you miss any payments at all that
are due under your plan, your case will
be dismissed by the Court. You also cannot
borrow money ( incur new debt) exceeding
approximately $250.00 during the pendency
of your case ( usually 3 years), without
first obtaining court approval. This can
be somewhat of a problem if, for example,
your car lease expires and you need to
get a new car during this period. It is
entirely possible that the Court will
not allow you to get a "new"
car for a higher monthly payment then
your last car was and if your payment
is less they might require that extra
money to be paid towards your plan.
HOW DOES IT
WORK AND HOW LONG DOES IT TAKE?
First of all, you must have "regular
income". Meaning, you must have some
source of income that is regular, or at
least can be averaged regularly on an
annual basis. You are usually required
to pay all of your disposable income to
the Trustee (the Trustee is the person
who administer's the debtor's case until
it is closed and collects the payments
from the debtor and then distributes them
to the creditors) through your plan (your
plan states how much money or other property
the debtor will pay to the Trustee, how
long the debtor's payments will continue,
how much will be paid to each of the creditors,
etc.) usually for 36 months.
Disposable income is defined as: income
received by you that is not reasonably
necessary for the maintenance and support
of your or your dependents. The key word
is "reasonably".
For example: if you are used to spending
$2,000.00 a month on a car, you would
not be allowed that much of an expense
for that since that is not considered
"reasonable." Thus, your disposable
income is calculated by taking your monthly
income and subtracting your reasonable
monthly expenses. Typically, the plan
payments last for 36 months, unless additional
time is requested, but in no event will
they last more than 60 months.
Therefore, if your payments analysis
shows, for example, that you can afford
to pay $200.00 per month ( over &
above your normal living expenses) you
would pay that each month to the Chapter
13 Trustee, who would disperse it pro
rata among your creditors. At the end
of 36 months, you are discharged from
all dischargeable unsecured debts, regardless
of how much your creditors have received.
In addition, to your plan payments, you
must stay current with any ongoing obligations
you have to secured creditors (only if
you wish to keep that item. You may "surrender"
it and then it becomes an unsecured debt.
"Surrender" means you give it
back to the creditor) such as on your
mortgage or car payment. Chapter 13 (or
any other chapter) only affects debts
that you owe on or before you filed the
bankruptcy petition.
Therefore, on your mortgages and other
secured debts, your monthly plan payment
goes to pay any arrearages ( past due
amounts) that existed on the date, you
file and you can repay that arrearage
over the life of the plan; but, you must
stay current from the filing date forward
with any payment on that obligation.
WHY
DO YOU NEED AN ATTORNEY?
Some paralegal services charge a minimal
fee to prepare and file the necessary
paperwork to file a bankruptcy. While
in some cases this may not be a major
problem, it has been my personal experience
that the risk is simply not worth it.
Much of what goes into the bankruptcy
petition comes from the insightful and
probing questioning from a qualified bankruptcy
attorney. Paralegals and other "bankruptcy
petition preparers" are strictly
prohibited from practicing law and, therefore,
cannot give legal advice or ask the necessary
questions to make sure you are completing
your paperwork fully and completely.
Even if they were legally allowed to
do so, they are not able to adequately
assess the laws surrounding exemptions
and to determine what your best options
are. Are you willing to risk possibly
losing your 401(k) or other assets because
the proper exemption wasn't used or they
didn't know the exemption existed; all
to save a couple hundred dollars?
In addition, most paralegals are not
qualified to prepare a Chapter 13 plan.
Are you willing to risk over paying, or
even worse, the possibility of your plan
not being confirmed by the Trustee and
have your case dismissed? You also may
be assuming there is no problem with listing
a particular asset, or reaffirming a particular
debt, only to find out months or even
years from now, that because you filed
the bankruptcy or didn't take appropriate
steps, that you did not get rid of that
debt, or that you may lose an asset, or
any number of other problems.
Perhaps most importantly, they also cannot
represent you in court or at the 341 hearing
(more commonly known as the meeting of
creditors). Further, if you list things
incorrectly in your petition, or omit
necessary items it is YOUR problem, not
the paralegals. You sign all your bankruptcy
papers under penalty of perjury.
Ultimately you may have to spend several
thousand dollars to attempt to remedy
a situation that could have been prevented,
or at least planned for, at the beginning.
It's your choice.
Now you are somewhat familiar with what
a CHAPTER 13 is and how it works. SHOULD
you HAVE THE NEED TO FILE A CHAPTER 13
BANKRUPTCY YOU now have a choice to make.
You can either do nothing AND LET THE
CREDITORS HARASS YOU AND POSSIBLY GARNISH
YOUR WAGES, FORECLOSE ON YOUR HOUSE OR
REPOSSESS YOUR CAR or you can SEE AN ATTORNEY
WHO SPECIALIZES IN BANKRUPTCY TO HELP
YOU PLAN AND TAKE CARE OF YOUR DEBTS.
The choice is yours.
At Fees You Can Afford We can often save
you more than the cost of our service
alone. Call now for a free consultation.
At Fees You Can Afford We can often save
you more than the cost of our service
alone. Call now for a free consultation.
(858) 277-0232. We are
a debt relief agency.. We are a debt relief
agency.
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