Understanding Chapter 13 Bankruptcy

Qualifying for Chapter 13 Bankruptcy

If you don’t qualify for a Chapter 7 Bankruptcy due to Excessive Income which is determined by calculating the means test, you still have the opportunity to get some debt relief through a Chapter 13. While in a Chapter 13 debt repayment plan, the creditors cannot collect from you, and the creditors are required by a Federal Court order to adhere to the terms of the chapter 13 plan. One very important thing to remember about Chapter 13 bankruptcy is you must be working or have a consistent source of income for your repayment plan in order for your plan to be approved by the court. Not only must you be able to pay for your monthly living expenses, but you must also be able to make a payment to the chapter 13 trustee in order to consolidate your debts. Debts that are generally consolidated in a Chapter 13 bankruptcy are mortgage arrears, balances on vehicle loans, student loans, credit card debts and other unsecured debts. All outstanding debts must be included in the Chapter 13 consolidation. Secured debts are typically paid 100% on the dollar, while unsecured debts may be paid less than 100% on the dollar. Some secured debts are eligible to be paid less. Unsecured debts, such as credit cards, typically are not entitled to interest in a chapter 13. A consultation with our attorney will determine whether your secured loan may be eligible for a less-than-full repayment.

The Means Test

In 2005 the Bankruptcy Code was significantly amended. It was Congress’ intent to make those who could afford to pay back a portion of their debt ineligible to eliminate their debt in a Chapter 7 bankruptcy. This intent is being carried out by the advent of the “means test.” This calculation is part of every bankruptcy filing. If a debtor is over the median income level for their family size, a presumption the debtors can afford to repay their creditors requires the completion of the means test. The calculations and figures are complex and complicated. For a minimal fee, the Law Firm of Robert C. Hahn, III can prepare the means test for individuals considering chapter 13, but unsure if they’re willing or able to afford the payment as required by the means test.

Excess Income

One of the documents you’ll need to file with your bankruptcy is a budget which demonstrates to the court how much income you have each month and how much you need to pay your taxes and living expenses. If your budget shows you have income you don’t need to pay taxes and live on, the court will require that you pay that excess income over to a trustee for a three year period in partial payment of the creditors. The plan under which these payments are made, from you to the trustee, is known as a “chapter 13” or “wage earner” plan. Your attorney will help you determine whether or not you have excess income based upon the information you provide at your free initial consultation.

Stop Foreclosure Immediately

If your home is presently in foreclosure, a Chapter 13 bankruptcy filing will stop the foreclosure any time prior to the sale, and allow you to repay your mortgage arrears through your Chapter 13. You’ll still be obligated to make all future mortgage payments directly to the mortgage company after your case is complete, but they may not foreclose to collect any outstanding mortgage payments.

Save Your Car

If the “repo” man is looking for your car, a Chapter 13 bankruptcy will also stop the finance company from repossessing your car. The past due payments and the entire balance on your vehicle loan will be consolidated, which you will pay off over the next three to five years. The vehicle finance company can no longer repossess your car, and you will no longer have to make a payment directly to the finance company. Only one payment is made, and that is to the Chapter 13 trustee.

Protect Cosigners

Your cosigners receive the same protection that you receive under Chapter 13 bankruptcy. Through a Chapter 13, we’ll protect your cosigners from collection activity, and the creditors must wait to be paid. So, if you friend or relative cosigned on your vehicle, and you’re having trouble affording the payments, we can put your remaining balance inside a Chapter 13.

Beware of Refinancing

If you have equity in your home, you can file a Chapter 13 bankruptcy, protect your equity, and repay your mortgage arrears over as long as five years. Refinancing or taking out a second mortgage may just create an additional mortgage payment that you cannot afford, instead of addressing the issue of the past due payments.

Don’t Eat Up Your Equity With Another Mortgage

You should explore all of your options, and make sure you contact us along the way so we may advise you of your legal rights. When you have quality legal representation, you become knowledgeable about your rights, and become less vulnerable to people trying to take advantage of you in a time of distress. Please remember that we offer a free consultation. Explore Chapter 13 bankruptcy as an alternative to a high-interest rate equity loan against your home.