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Chapter 13 Bankruptcy FAQs
Do I Qualify For A Chapter 13 Plan?
You don’t necessarily have to “qualify” for a Chapter 13 like you do in a Chapter 7; however, there are certain requirements and limitations to keep in mind. First, you must be a “wage earner” which simply means you will be able to show the court that you have enough income every month to pay your necessary and reasonable living expenses and still have enough left over to pay the trustee what you propose to pay. Second, there are “debt limits” in a Chapter 13. This amount changes however, as of April 2019, the allowable amount of debt is $1,257,850 in secured debts and $419,275 in unsecured debts. So if you exceed any of these number you will have to consider a Chapter 7 or Chapter 11 possibly. Lastly, priority debts, such as taxes and child support arrearages MUST be fully paid through the Chapter 13 Plan. So if you are unable to afford doing so in the maximum 5 years allowed, the Court will not confirm your Chapter 13 Plan.
How Is My Chapter 13 Payment Determined?
As a general starting point, your chapter 13 payment is determined by subtracting all of your reasonable and necessary living expenses from your net income. In other words, it is based on what you can afford. But there are instances where the starting point is based on the amount of debt you have. For example, if you have $15,000 in tax debts that must be paid through the plan, then that amount at a minimum divided over 3-5 years must be paid which may be more or less than what you can afford. There are also times where you may be required to payback 100% due to either a previous bankruptcy or you insist on paying for a luxury debt through the plan. Therefore it is important to speak with an experienced bankruptcy attorney who is skilled in finance to ensure you are getting the absolute most benefit from the Chapter 13 at the lowest monthly payment. This is precisely what separates the “good” attorneys from the “bad” ones. Nearly ½ of our Chapter 13 filings are either paying $0 to unsecured creditors or less than 50%
How Is A Chapter 13 Case Different From A Private Debt Consolidation Service?
Private debt consolidation services cannot provide the same kind of relief that bankruptcy court can. The court can forbid creditors from foreclosing the debtor’s property and can discharge some of that individual’s debt. Bankruptcy courts can also compel creditors to accept and observe the debtor’s new repayment plan. Furthermore, debt consolidation is not always successful and you may continue to owe creditors when you were told otherwise. In a Chapter 13, you will resolve your debt if you complete the plan. Lastly, many of these debt consolidation companies operate on the model of collecting your money to then offer a settlement to a creditor for pennies on the dollar. You can do that yourself, you don’t need to pay their high fees to do that. But more importantly, when they “settle” a debt, you will likely receive a 1099 at the end of the year to pay taxes upon as the IRS code considers “forgiven” debt as taxable income.
What Is A Chapter 13 Discharge?
A chapter 13 discharge is no different from a Chapter 13 discharge in that it releases you from liability for paying them and requires creditors to cease attempts at collecting repayment. The only difference is that the creditors “may” have received a portion of the debt owed to them through the plan. Regardless, whatever is owed upon plan completion is discharged!
My Attorney Said That I Would Have To Payback 100% To My Creditors Through The Chapter 13 Plan. What Is The Benefit To Filing A Chapter 13 Then?
We get this question a lot. While it is certainly not very common, there are debtors that must payback 100% to their creditors through the Chapter 13 Plan. Similarly, some debtors will realize that the monthly trustee payment proposed to them is not cheaper than what they are currently paying outside of bankruptcy, so the logical question then is “why should I file a bankruptcy?” The answer to both is YOU ABSOLUTELY STILL SHOULD FILE AND HERE IS WHY. First off, you have to remember to compare apples to apples. If you are paying $700 a month in minimum credit card payments, in 5 years you will have barely touched the principal balance if at all, as most of the minimum payment goes only to interest. But if you are paying $700 a month in a Chapter 13, you will ne DONE in a maximum of 5 years; thus, the bankruptcy is providing you with a path to actual debt freedom. Second, it is common for Chapter 13 debtors to pay 0% in interest to the unsecured creditors along with reducing the interest to secured creditors. Thirdly, you are provided with a singular monthly payment that won’t change. Fourth, you’ll be free from the stress of creditor mail and phone calls as that will stop. Lastly, creditors have 90 days to file claims with the court, evidencing how much is owed to them. This is a strict deadline. If the claim is not filed, they don’t get paid and it will be discharged. So, it is actually quite common that we will propose a certain payment amount for clients over a 5 year period; however, due to some creditors not filing claims by the deadline, you then can choose to reduce your monthly payment to remain at 5 years or keep the payment the same and be done in a much shorter period of time.
How Are Secured Creditors Dealt With In Chapter 13 Cases?
If you have a house payment and/or vehicle payments you can elect to continue to pay those directly outside of the Chapter 13 or we can include them into the plan. We typically provide our clients with both scenarios and the resulting payments so that they can decide for themselves which route they want to go.
How Are Cosigned or Guaranteed Debts Handled In Chapter 13 Cases?
If a co-signed debt is being paid in full under a chapter 13 plan, the creditor may not collect the debt from the co-signer or guarantor. However, if a consumer debt is not being paid in full under the plan, the creditor may collect the unpaid portion of the debt from the cosigner or guarantor. A consumer debt is a non-business debt. Creditors may collect business debts from co-signers or guarantors even if the debts are to be paid in full under the debtor’s plan.
What If I Lose My Job or Change Jobs During The Plan?
This happens unfortunately as it simply a part of life regardless of the bankruptcy filing. The key here is to communicate with your bankruptcy attorney at all time and ahead of time. Often we can suspend payments or modify a plan to reflect the reduced income and save the plan from failing and being dismissed. If you flat out lose your income and can no longer pay the trustee, then we may have to consider converting the case to a Chapter 7 to get a discharge of the debts. However, it is important to discuss this in depth with your attorney to be aware of any ramifications as to assets.
Yes. An existing chapter 7 case may be converted to a chapter 13 case at any time at the request of the debtor if the case has not previously been converted from chapter 13 to chapter 7.
How Does A Chapter 13 Case Affect Collection, Lawsuits And Foreclosures That Are Filed Against The Debtor?
The filing of a chapter 13 case automatically stays (stops) all lawsuits, attachments, garnishments, foreclosures, and other actions by creditors against the debtor or the debtor’s property. This stay is called the automatic stay for a reason, it happens “automatically” by operation of law immediately upon filing. It is very common for our office to file a bankruptcy hours or even minutes prior to a sheriff sale/foreclosure.
What Is A Priority Claim?
A priority claim is an unsecured claim that is given priority of payment under the Bankruptcy Code. It is a claim that must be paid before other unsecured claims are paid. Examples of priority claims are tax claims, wage claims, and claims for alimony, maintenance or support. Claims for administrative fees, such as the chapter 13 trustee’s fee, the filing fee, and the fee of the debtor’s attorney, are also priority claims in chapter 13 cases.
When Do I Start Making Payments To The Trustee?
Trustee payments are due timely every month on the same day and start 30 days after we file your case. We will fully explain your options and procedures for making your trustee payments; however, the overwhelming majority of client pay via automatic wage order to ensure timely payments are made without cost or worry.
Chapter 13 Bankruptcy Attorney, West Palm Beach
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