Chapter 13 Bankruptcy
Chapter 13


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What is Chapter 13 Bankruptcy?

Individuals who do not qualify for Chapter 7 bankruptcy may file Chapter 13 instead. Chapter 13 is also an option for businesses, but it is far more common for them to file Chapter 11 bankruptcy.

Unlike Chapter 7 bankruptcy, Chapter 13 does not involve the liquidation of the filer’s nonexempt assets. Rather, it involves the creation of a debt repayment plan that allows the filer to work through the debt over the course of three to five years with careful budgeting and supervision by a bankruptcy trustee. Some individuals who qualify for Chapter 7 opt to file for Chapter 13 instead because of the greater control the filer has in this process.

Hi, my name is Kevin Schmidt and I’m a bankruptcy attorney at the law office of Kevin Schmidt. And I often get asked, What reasons should I file a Chapter 13? Let me first say that people think a chapter 13 is a reorganization and payback of all your debts. And that’s not true. A chapter 13 is a reorganization, but you oftentimes do not pay back all of your debts. Chapter 13 lasts for three to five years, people primarily filed chapter 13 to stop Sheriff sales. If your house is being said, for sure, so there’s no way to stop it. file a Chapter 13 that gives you up to five years to catch up on your mortgage payments, and become current with the mortgage and keep your house. Often people file chairpersons to stop repossessions if you’re a couple months behind in your car, they’re going to come take it, file a check with their team and you can pay off your car over the next five years. If the IRS is garnishing your wages you can file a Chapter 13 will stop the garnishment give you an opportunity to pay back the taxes that you owe over five years. Oftentimes the interest will stop and penalties good discharge. Then there’s the determination how much of those unsecured debts get paid. Unsecured debts include things like credit cards, medical bills, payday loans, all those things are lumped together as an unsecured creditor. And the amount of those that get paid back is determined by how much income you have, and how much equity in the assets that you own. So the more income you have, the more assets you have, obviously, the more of those unsecured debts you’re going to pay back. If you have minimal income and minimal value in your assets. Oftentimes those unsecured creditors don’t get paid anything. So if you want to discuss your financial situation, feel free. Give me a call

It is important to note that most Chapter 13 filers do not repay all of their unsecured debt. Generally, a portion of this is repaid. Secured debt is often repaid in full. Unsecured debts are debts that are not backed by collateral, such as debts on unsecured credit cards. Secured debts are those that are backed by collateral, like your mortgage.

The Chapter 13 Bankruptcy Process

Like with Chapter 7, you will need to complete a credit counseling course before you can file for Chapter 13 bankruptcy. More than 180 days may not elapse between completing your course and filing your bankruptcy petition. Your debt must also not exceed the following amounts: $1,184,200 for secured debts and $394,725 for unsecured debts.

To file for Chapter 13 bankruptcy, you will need to provide the following:

  • Details about every debt you owe;
  • Documentation of your income for the previous six months;
  • Verification that you filed your taxes for the past four years;
  • Your driver’s license and social security card;
  • A list of all your assets and monthly living expenses; and
  • Certification that you completed credit counseling.

In order to move forward with your Chapter 13 bankruptcy plan, you will need to submit a repayment plan and have it approved. Approval of your plan is based on your ability to realistically make your proposed monthly payments based on your income. Your bankruptcy trustee may recommend your play for confirmation by the court, and once it is confirmed, you must adhere to it for the specified period of time. You will make the payments to your trustee, who will disburse the money to your creditors. Once you file for bankruptcy, an automatic stay goes into effect. This is a court order prohibiting your creditors from attempting to collect debt payments from you. Certain collections are not affected by this, though. These include child and spousal support payments.

When you have satisfied the repayment plan, the court may close your case. A closed Chapter 13 bankruptcy will remain on your credit report for seven years following its completion.

When most people first learn of chapter 13 bankruptcy they have a lot of questions about what the process is like, what to expect and whether it is right for them. Here are 13 facts you need to know about chapter 13 to help you be debt free and determine if Chapter 13 bankruptcy is for you.

  1. Debtors keep control of their assets: They run their businesses. There is no trustee tasked to sell assets. If an asset is worth more than the amount allowed to protect it, then the consumer has to pay for the value through their plan.
  2. Repayment to creditors can be little or even nothing: It depends on the debtor’s income and the value of their assets. I have filed cases where the consumer pays $1 to unsecured creditors like credit cards, but the results will vary based on available disposable income and household size.
  3. Chapter 13 plans can be changed during the case: If income falls or is temporarily interrupted, the plan can be changed to accommodate the change by filing a motion to modify your payment plan. If your income falls significantly you could always convert your case to a Chapter 7 bankruptcy if you qualify.
  4. The case can be dismissed at any time: You can get out of chapter 13 bankruptcy if you want at any time, unlike Chapter 7 bankruptcy where you are generally locked into the case. The bankruptcy automatic stay protects the debtor for the 3 -5 years while in an active chapter 13 plan
  5. No foreclosures, no repossessions and no garnishments will be able to hurt you moving forward: Mortgage defaults can be cured over as long as five years Additionally you can even request a loan modification while in the Chapter 13 bankruptcy and then dismiss your case once approved if you feel you don’t need the bankruptcy after obtaining a loan modification. Chapter 13 bankruptcy filings can also be very useful if you need to stop a foreclosure sale immediately but don’t intend to stay on the repayment plan. This helps if you need to buy some time to short sell the property or make other arrangements moving forward.
  6. The interest rate on car loans can be reduced to today’s market rate: This is called a cram down and the rate used is called the till rate which is about 3.25%. This can only be done if the car was purchased more than 910 day prior to filing.
  7. Mortgage liens that are totally underwater can be eliminated forever in chapter 13 bankruptcy: This usually applies to 2nd mortgages that can be stripped away by filing a motion to strip the lien. So if your first mortgage is worth more than your home, then you may be able to strip the second mortgage which would allow the second mortgage to be stripped and treated like a general unsecured creditor who doesn’t need to be paid back in full.
  8. The IRS has to go along with the repayment terms in your plan, without interest: If the taxes owed are recent, then they would have to be paid in full over the duration of your chapter 13 plan.
  9. Tax debt that is older than 3 years: Tax debt that is older than 3 years from the date it was due may be discharged in Chapter 13 bankruptcy as long as your tax returns have been filed more than 2 years ago and your taxes have not been reassessed recently.New taxes are considered priority debts and must be paid in full. Older taxes can be treated as unsecured debts, just like a credit card or medical bill.
  10. Certain types of Debts to former spouses, other than support, can be discharged: This is generally not the case in Ch. 7 bankruptcy. If the monies owed is for maintenance or support of children, the debt will never be discharged. If however the monies owed is for attorney fee’s or other non support payments, the debt may be dischargeable in chapter 13 bankruptcy.
  11. If you have had your license suspended, you can get it back by filing for Ch. 13: Some penalties may need to be paid off in your plan, while others may be discharged. Your attorney will need to know about each ticket and number so that they can list them completely in your bankruptcy filing. The court or the department of licensing will need to be notified of your filing and you can provide your case number once your case is filed.
  12. Attorneys fees for the case can be paid after filing: Although most attorney’s charge a fee prior to filing but it may be 1/3 of the total cost. Additionally the court filing fee of $310 needs to be paid, but in Washington the court allows you to pay only $100 of the filing fee at the time of filing if you have not had a previous case dismissed without paying the full filing fee.

Work with an Experienced Merrillville Bankruptcy Lawyer

To ensure that your rights are protected throughout the Chapter 13 bankruptcy process, work with an experienced bankruptcy lawyer. Contact Whitten & Whitten today to set up your initial consultation in our office.

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We are a debt relief agency. We help people file for bankruptcy relief under the bankruptcy code. This information is designed for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship. Past results and testimonials are not a guarantee, warranty, or prediction of the outcome of your case, and should not be construed as such. Past results cannot guarantee future performance. Any result in a single case is not meant to create an expectation of similar results in future matters because each case involves many different factors, therefore, results will differ on a case-by-case basis. By providing certain contact information herein, you are expressly authorizing the recipient of this message to contact you via the methods of communication provided.