Why do some people file under chapter 13 bankruptcy?

 

What is the difference between Chapter 7 and Chapter 13?

 

The Bankruptcy Code allows individual debtors to file bankruptcy under either Chapter 7, 13, 11 or 12. Choosing which chapter to file under is a critical decision and involves a complex analysis of your over-all financial situation, including but not limited to your income, expenses, assets, the amount and type of your debts, and both short-term and long-term financial goals.  There are two chapters under which most individual debtors file bankruptcy: Chapter 7 and Chapter 13.



 

Chapter 7 is designed for debtors in financial difficulty who do not have the ability to pay their
existing debts. Debtors whose debts are primarily consumer debts are subject to a “means test” designed to determine whether the case should be permitted to proceed under chapter 7. If your income is greater than the median income for your state of residence and family size, in some cases, your case may be dismissed. Under chapter 7, you may claim certain of your property as exempt under governing law. A trustee may have the right to take possession of and sell the remaining property that is not exempt and use the sale proceeds to pay your creditors. Most Chapter 7 cases that are filed with the court, however, are no-asset cases, meaning there is no property to administer for the trustee because everything that you own are exempt under the applicable law.

 

Chapter 13 is designed for individuals with regular income who can pay part of their debts in installments
over a period of time. You are only eligible for chapter 13 if your debts do not exceed certain dollar amounts set forth in the Bankruptcy Code. Under chapter 13, you must file with the court a plan to repay your creditors part of the money that you owe them, using your future earnings. The period allowed by
the court to repay your debts may be three years or five years, depending on your income and other factors. The court must confirm your plan before it can take effect. After completing the payments under your plan, your debts are discharged. (unless it is a non-dischargeable debt such as domestic support
obligations, most student loans, certain taxes, most criminal fines and restitution, etc.)

 

The information contained on this site is for general education only and it is not, nor is it meant to be, legal advice.  You should seek advice from a bankruptcy attorney for your specific situation.



 



 





How is My Monthly Plan Payment Determined in Chapter 13 Bankruptcy?

 

When calculating your monthly plan payment, you have to go through a number of tests. First, you must
do the Means Test, which takes into consideration the combined income for your household and your expenses (some of which are actual and some of which are standard deductions allowed under the IRS guidelines). You must also do a Chapter 7 liquidation analysis to make sure that your unsecured creditors would receive at least the amount they would have received from the sale of your non-exempt assets had your case been filed under Chapter 7. There is also a good-faith requirement which requires you to commit all of your disposable income (the net income that is actually left over after all the expenses every month) towards your plan payments. And finally, you must make sure that your plan provides for all required payments in your plan, such as your priority debts (e.g. domestic support or certain taxes), arrearage on secured debts, and the administrative expenses for your case.

 



In the event that there is a major change in your income, employment, or household size while your Chapter 13 case is still pending, your attorney may be able to help you modify your monthly plan payment.

 

 

The information contained on this site is for general education only and it is not, nor is it meant to be, legal advice.  You should seek advice from a bankruptcy attorney for your specific situation.



Can Bankruptcy Lower My Monthly Mortgage Payments?

 

Under the current law, you cannot force a mortgae company to do a loan modification in bankruptcy court. 

However, there are some ways in which bankruptcy can help you keep your home. Filing bankruptcy imposes an “automatic stay,” which causes all collection activities, including foreclosure proceeding or pending trustee sale, to stop immediately. Filing bankruptcy can also give you some time to save money to catch up with your mortgage arrears. Lastly, filing bankruptcy under Chapter 13 gives you the ability to force your mortgage company to receive the past-due payments over a period of up to 5 years.

Another way Chapter 13 bankruptcy may help you keep your home is if you have a second (or third) mortgage loan or a home equity loan that is wholly unsecured, i.e., the value of your home is less than or equal to the mortgage loan balance for your first loan. If this is the case, you may be able to lien strip and wipe out the second mortgage in a Chapter 13 bankruptcy. This will allow you to focus on your first mortgage payments after the lien strip and help increase your chances of keeping the home.

 

The information contained on this site is for general education only and it is not, nor is it meant to be, legal advice.  You should seek advice from a bankruptcy attorney for your specific situation.