REORGANIZE AND GAIN NEWFOUND BALANCE
Where it may not be appropriate to file a Chapter 7 on your behalf or it may not qualify for a Chapter 7 and a Chapter 13 may be the solution to your problems. You may not pass the means test and have to file a chapter 13, or you may pass the means test but have properties with equity that cannot be protected in a Chapter 7.
Unlike a Chapter 7, where you are for most purposes STARTING OVER, a Chapter 13 allows you to keep what you have even if you are behind. The court will allow you to work out a payment plan ranging anywhere from 3-5 years. For some individuals starting over isn't what they need, rather restructuring their debt and a workable plan is the answer.
A Chapter 13 will protect you from the court's power to liquidate your assets. A Chapter 13 will allow you to keep your house if your behind on payments and possibly even eliminate your second mortgage.
FREQUENTLY ASKED QUESTIONS
1. Can filing a Chapter 13 stop a foreclosure?
In a Chapter 13, if you can prove that you can cure the arrears (back payments) on the house throughout the course of a 3-5 year plan and still stay current on all future mortgage payments and impounds, then you can save your house from foreclosure.
2. What percentage of my debt will be wiped out in a 13?
It all depends on many factors such as your disposable monthly income and the amount of your unprotected assets. If you are facing debts you cannot pay off in a reasonably short period of time, a Chapter 13 (if Chapter 7 is not possible) will always be the better option. Percentage of unsecured debt that can potentially be wiped out in a Chapter 13 can be as high as 100%.
3. Who pays my creditors while I am in a 13?
You do. Each month, you make a payment to the trustee and the trustee distributes payments to the creditors in order of their priority. An ideal Chapter 13 plan pays back very little or nothing to unsecured creditors.
4. Do I have to show the court that I have income to qualify for a 13?
Yes. A Chapter 13 consists of some repayment of some debt, whether mortgage arrears, back income taxes or credit card debt.
Example: If you are trying to save a house with $30,000 in arrears and a monthly mortgage payment of $2,000, then you must prove to the court that you can afford to pay at minimum - $2,500/month for a maximum of 60 months (the current mortgage of $2,000 + $30,000 divided by 60 months or $500/month in addition)
5. How many years will my plan be?
Chapter 13 plans range from 3-5 years. They can never exceed 5 years (60 months). Consider that in most cases, this is always better than the 20-50 years it will take most to pay back their debts, if they can pay them back at all.
6. I've heard I have to take a credit counseling class; is this true?
You must take 2 online courses to continue with a successful bankruptcy. One is taken before filing, the other after filing. They are quite simple and usually no more than 2 hours each.
7. If someone is currently suing me, will filing a 13 stop this lawsuit?
Yes. The filing of a bankruptcy under either Chapter 7 or 13 will stop a lawsuit in the State court and most of the time terminate the action forever. However, pay special attention to the fact that a minority of lawsuits may continue into the bankruptcy court under what are called adversary proceedings. An adversary proceeding allows a creditor to bring a lawsuit in the bankruptcy court for any allegation(s) presumably not dischargeable under the bankruptcy code (such as "fraud"). Adversary proceedings, as a percentage, are a slight minority.
8. Will a 13 stop a wage garnishment?
Yes. Both Chapter 7 and 13 filings will stop or prevent future wage garnishments.
9. How will I know how much I will be paying in a 13 every month?
This will be determined after both a complete analysis done by your Chapter 13 attorney and based on your disposable monthly income and/or unprotected assets as well as any potential negotiation done at the actual Chapter 13 hearing. Remember that even at 100% debt repayment (which is very rare), Chapter 13 is always a better alternative to the interest and fees you are currently paying to your creditors.
10. Can I file a 13 on my own?
Like a Chapter 7, you can file Chapter 13 in pro per (on your own), but heed my warning on this one: Every pro per/se Chapter 13 I have seen in court (and it has been many) has been dismissed by the judge because without proper legal handling, a Chapter 13 is very difficult to execute. In fact, quite often the judge will tell a pro per filer to seek legal representation before filing another Chapter 13.
11. Can I remove my second and third mortgages from my house with a Chapter 13 and still keep my house?
Yes. Only in a Chapter 13 can you have the rights of a mortgage holder modified from secured (to the house) to unsecured. This is often called a lien strip and happens when you can prove to the court that the value of your house is less than the first mortgage (an appraisal is required). The judge can then modify the lienholder's rights and convert them to an unsecured debt identical to a credit card. The percentage you pay back to the unsecured debt would be the amount you pay back on the unsecured mortgage(s). This can oftentimes be 0%. The mortgage is only removed after the completion of the plan (3-5 years). If you qualify for a Chapter 7 and are in a situation where a lien strip would benefit you, then we can propose a 3-year minimum payment plan (sometimes as low as $50-$100/month for 36 months on all unsecured debt) with the unsecured mortgage being discharged at the end of this period.