When you really need a Chapter 13 bankruptcy, filing under Chapter 7 can be disastrous at worst — or result in lost opportunities at best. A Chapter 13 bankruptcy is not just for people who earn too much money to file Chapter 7 bankruptcy. Knowing when to file a Chapter 13 bankruptcy is important. Some bankruptcy lawyers claim they “only file chapter 7 cases” usually because they don’t understand Chapter 13 bankruptcy.
- Contrary to popular belief, Chapter 13 does NOT mean you must repay your debts in full.
- Stop foreclosure. Get the time you need over five years to catch up your mortgage.
- Eliminate your second mortgage entirely in many cases.
- Stop IRS tax levies. Pay back taxes without penalty and interest over time.
- Protect all of your property. Nobody is waiting to liquidate any of your property.
- Behind on child support? Stop contempt proceedings immediately.
- Eliminate divorce obligations not related to child support or maintenance.
Foreclosure. In a Chapter 13 bankruptcy reorganization plan, you can get your house out of foreclosure. Your past-due mortgage payments are paid over time in a five-year reorganization. Furthermore, in many cases, you can strip off your second mortgage meaning you get to keep your house without having to pay the second mortgage.
Taxes. With Chapter 13 bankruptcy, you can restructure income taxes over five years without any additional penalties or interest. Some taxes don’t have to be paid at all.
Divorce issues. If you owe back child support or maintenance, the quickest way to permanently get the former spouse off your back is through Chapter 13 bankruptcy. Even if you have a contempt hearing coming up in a few days, that hearing will come to a grinding halt when you file Chapter 13. Your back support payments will be paid over the life of a five-year bankruptcy reorganization plan. Further, if you were — for example — ordered to pay “half of the marital credit card debts” then Chapter 13 bankruptcy can fix that, too.
Non-exempt property. If you are one of the few bankruptcy candidates that has non-exempt property which will be lost in a Chapter 7 bankruptcy filing, then Chapter 13 may be for you. Non-exempt property is property that isn’t protected by the long list of bankruptcy exemptions and is property that a Chapter 7 trustee would liquidate.
Write off most, if not all, of your unsecured debts. A Chapter 13 bankruptcy is a plan of financial reorganization. Contrary to popular belief, Chapter 13 does NOT mean that you must repay all your debt. Most Chapter 13 plans involve the repayment of about 20% (sometimes MUCH less, sometimes more) of your debts over a three to five year period. The debt that is not repaid is “discharged” or written off when you complete the bankruptcy repayment plan.
The “Rules” of Chapter 13 bankruptcy. Chapter 13 bankruptcy is based in part on your ability to repay. Simply put, the bankruptcy court looks at your net income minus your expenses in determining how much you must pay to your creditors every month. However, under bankruptcy “reform”, your ability to repay is determined mainly by application of maximum “allowable” expenses established by the Internal Revenue Service’s collection standards.
When you retain us as your Chapter 13 bankruptcy attorney, we know how to use the law to your advantage. This means that even though your expenses may be higher than the IRS’ idea of “average” we look for other allowable deductable expenses that help reduce your monthly Chapter 13 bankruptcy reorganization plan payment. Such expenses include, but are not limited to:
- 401(k) contributions up to the maximum you can contribute to your plan
- Daycare expenses
- Mortgage expenses over and above the presumed housing allowance
- Medical and life insurance expenses
- Mandatory payroll deductions
- Domestic Support Obligations
Before the summer of 2010, this was a lot of ambiguity regarding the size of your bankruptcy payment. The Chapter 13 Trustee argued that your payment had to be based on your last six months of income (means testing) instead of being based on your current income and ability to pay.
The U.S. Supreme Court shot down this unreasonable position in a decision called Hamilton vs. Lanning. Your bankruptcy payment now must be based on your actual current ability to pay — NOT entirely on your past income. More information on the Lanning decision is located here.