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What can you do with a Chapter 13?

A Chapter 13 bankruptcy is unique in that it offers a repayment plan that can be individually tailored to meet your needs. Within certain broad rules, you can repay some debts on your terms, and discharge debt that you don’t have to pay!

  1. Stop foreclosure, repossession, and harassing creditor calls

A bankruptcy will almost always immediately stop any repossession, foreclosure, or harassing creditor calls. This is true for any chapter of bankruptcy. But, did you know that if you file your bankruptcy as a Chapter 7, you may not be able to switch chapters later on, to take advantage of benefits not available under Chapter 7? Alternatively, if you file under Chapter 13, you have a unilateral right to convert or dismiss your case any time you want. In an emergency situation to stay a foreclosure or repossession, filing a Chapter 13 bankruptcy is the safe way to go.

  1. Get caught up on mortgage arrears

A Chapter 13 bankruptcy is maybe better known as a “reorganization” type of bankruptcy. In a Chapter 13, the court allows you to repay whatever needs to be repaid over a 3 to 5 year period, while still discharging any debt you don’t need to pay.

If you want to keep your house, you will need to get caught up on that mortgage somehow. One way to get current on the arrears is include them in a Chapter 13 Plan. This takes the total amount of the arrears, and breaks them into monthly payments over 36 mos (3 years) or 60 mos (5 years), depending on what works best for you. One of the greatest benefits of using a Chapter 13 to get caught up on arrears is that you will stop incurring late fees and penalties!

If monthly payments on the arrears isn’t a feasible option for you, a Chapter 13 bankruptcy can also buy you time to get a loan modification or sell your house and avoid a foreclosure.

  1. Get rid of that second mortgage!

In some cases, a Chapter 13 bankruptcy can help you wipe out your second mortgage entirely! People used this tool substantially in bankruptcy when property values declined. With values now increasing, it isn’t used as often, but it is still an important tool in the bankruptcy tool box.

  1. Get caught up on your car loan

If you are behind on your car loan, you can get caught up through a Chapter 13 bankruptcy. A Chapter 13 Plan will take the balance left on the loan and break it up into monthly payments over a 3-5 year period. This usually results in the Chapter 13 monthly car payment being less than your current monthly car payment! Filing a Chapter 13 will also immediately stop the financing company from repossessing your car.

Has the financing company already gotten your car? If they haven’t sold it at an auction, filing a Chapter 13 may allow you to even get your car back after repossession!

  1. Reduce the interest rate on your car loan

A Chapter 13 doesn’t require you to pay the high interest rate you got with your loan. The purpose is to help individuals reorganize debt in an affordable manner, how would an unreasonably high interest rate help you do that? Chapter 13 bankruptcy allows you to set the interest rate you pay on your car loan to the national prime rate, plus 1.5% for risk factor. Usually, the Chapter 13 interest rate is substantially less than your current interest rate.

  1. Reduce the amount you owe on your car loan

Do you owe more on your car than it is currently worth? In some cases a Chapter 13 Bankruptcy plan will allow you to pay only the market value of your car! This will reduce the overall balance of the loan, and results in thousands of dollars in savings to you.

  1. Sometimes, you can even get rid of your car loan completely!

In some specific cases, the Chapter 13 will even allow you to strip the lien on your car!

  1. Repay your taxes – on your terms! Even freeze interest and penalties!

One of the best uses for a Chapter 13 Bankruptcy is to help taxpayers get control of their mounting tax debt. Too many times when we owe taxes, we are unable to easily get them paid off due to the constantly accruing interest and penalties. Even if you enter into a repayment agreement with the IRS, they may be charging you for interest and penalties. This means you are paying the federal government more than you need to!

A Chapter 13 plan will freeze the interest and penalties, and pay the taxes off over the duration of your plan in monthly plan payments. You may even be entitled to a discharge of some of your tax debt.

  1. You don’t make too much money to file

I talk to a lot of people who say they just make too much money to file for bankruptcy, but not enough to keep up with their debt. I understand the frustration and feeling overwhelmed, but this is simply not true. Even if you make too much money to file a Chapter 7 bankruptcy, a Chapter 13 will allow you to pay a portion of your disposable income to unsecured creditors, and discharge the remaining balance of your debt to them. It is very similar to the concept of debt settlement, where you pay pennies on the dollar, but takes the power to accept your offer away from the creditors who got you in this situation in the first place. Because you are proposing the debt settlement within the bankruptcy, it is up to the Bankruptcy Court and the Trustee to accept or reject the plan. And the Bankruptcy Court will never make you pay more than you can afford.

A Chapter 13 bankruptcy is one of the most versatile tools in a bankruptcy attorney’s arsenal. It restructures debt that needs to be paid, like taxes or a house or car you want to keep, while offering all of the advantages of a traditional liquidation bankruptcy.

The important thing with a Chapter 13 is to plan ahead. If you are being charged late fees for a debt now, it is important to talk to an attorney about the advantages of filing sooner rather than later.

Also, if you are facing foreclosure, an emergency bankruptcy can be filed just before the sale, but you may end up paying more in legal fees to get it filed on time. As with all legal matters, planning ahead of time will get you the greatest bang for your buck.

Chapter 7 vs. Chapter 13

Which Chapter Does Your Bankruptcy Belong In?

Man calculating his bills while his family are on the sofaIn 2005, a major change was made to how Chapter 7 Bankruptcy is processed in the United States. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 instituted a means test to determine whether an individual should file for Chapter 7 or Chapter 13 as well as some other new requirements. Chapter 11 is typically for small businesses and will not be addressed in this article. Many may dispute how much abuse has been prevented and just how consumers are being protected by this law. Anyway, let us now focus on the means test requirement.

Test Your Means, Does It Amount to More Than a Hill of Beans?

The means test will determine whether you are eligible for Chapter 7 or 13. If you make more than the median income for your state, California’s median income for a single earner is $48,415, then you will have to file for Chapter 13. Why is this important? Chapter 7 liquidates your debts quickly whereas a Chapter 13 filing entails a 3-5 year payment plan with a strict budget. More on that in a moment.

What Does Chapter 7 Bankruptcy Mean to Me?

Chapter 7 bankruptcy is the most common form filed and we are experts on it here at the Law Offices of Ted A. Greene. Many of our clients ask what Chapter 7 requires. We do not need all of this information in the first consultation but as we work with you we will require:

  • A complete list of all creditors as well as the specific amounts and the nature of each claim
  • The origin, amount, and frequency of our client’s income
  • Last 2 years of most recent tax returns
  • Previous 6 months of bank statements
  • A list of our client’s property and all assets
  • A detailed breakdown of each client’s monthly living expenses including: food, clothing, shelter, utilities, taxes, transportation, medicine, etc.

 

Regardless of whether a married person is filing jointly or individually, the court requires this information for their spouse as well to evaluate the financial position of our client’s household. The state of California has its own exemption systems as allowed by federal law and requires each debtor filing for bankruptcy to use one of two schedules. We won’t get into the specifics of the property exemptions allowed in this article but it is extensive. Once you have properly filed for Chapter 7 bankruptcy your debts can be resolved in as little as 4-6 months.

Why Would I File Chapter 13?

The main reason many people file for Chapter 13 is because they make too much money to qualify for Chapter 7. An income that is higher than $48,415 for a single earner in California will typically push you over into Chapter 13. There are some deductions that can keep you in a Chapter 7 if you are slightly over the median income but we won’t address their complicated nature here.

The main feature of Chapter 13 is the repayment plan. This plan allows you to address your debts in payments as negotiated by the bankruptcy trustee. The plan is proposed in “good faith” with the full intention of completing the payments. The Chapter 13 repayment plan may take 3-5 years to complete. Many creditors owed for unsecured debts may receive as much as they would have in Chapter 7 bankruptcy, meaning nothing. If one is unable to complete a payment plan on Chapter 13, a Chapter 7 may be allowed after the failure of the payment plan. Many may use an emergency Chapter 13 filing to stall a foreclosure long enough to complete a short sale. There are restrictions in Chapter 13 which will require one to seek approval before applying for substantial new debt such as a car loan. While we do not process Chapter 13 filings here at the Law Offices of Ted A. Greene, we can refer you to someone who is quite capable.

What Should I Do?

If you are a California resident and are tired of creditors harassing you, tired of feeling overwhelmed and under-informed, or you just want to know what your options are please contact me, Ted A. Greene, today at 916.442.6400. Either a member of my experienced staff or I will talk to you. Your initial consultation will cost you nothing more than your time. You can also complete the form on our Contact Us page and we will call you. I personally guarantee I can process your Chapter 7 bankruptcy for less than any other attorney in the Sacramento metropolitan area, come in, sit down, and we can help you chart a better financial future for you and yours.