Chapter 13 Bankruptcy
Chapter 13 Bankruptcy is most commonly used by families or small, unincorporated business for any of the following reasons:
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- They are behind on a house payment and facing foreclosure (read our complete guide to home foreclosure here)
- They are behind on a vehicle and facing repossession; (read our complete guide on how to not lose your vehicle due to problems with loan repayment here)
- They have judgments against them and are in danger of having property seized
- They have property that they would lose if they filed Chapter 7 Bankruptcy
- They make too much money to qualify for a Chapter 7 discharge
In many instances, Chapter 13 allows people to reorganize their debts and land on their feet, while avoiding the loss of a home or vehicle.
If you look at the Chapter 13 FAQ, you’ll see a lot of answers to commonly asked questions. We would be happy provide a consultation to you to give you answers specific to your personal situation or if you do not see the answer to your question: click here to send us a message or call 281-847-4345.
– What is Chapter 13?
Chapter 13 is a plan of reorganization for a consumer or small unincorporated business. The plan is overseen by the court and the payments are processed through the office of the Chapter 13 trustee. In a Chapter 13 plan, the debtor pays back some or all of the debt owed. Your attorney will help you determine what types of debt may be wiped out and what types of debt must be repaid. Chapter 13 is often used by families facing a vehicle repossession or home foreclosure. Chapter 13 may also be used to have a court administered plan to pay back property or income taxes. Chapter 13 has other uses but these are the most common.
– Can bankruptcy stop a foreclosure or repossession?
With rare exceptions, yes. The main exception is if you have had two or more prior bankruptcies dismissed in the 365 days prior to filing the most recent one.
– What do I need to qualify for Chapter 13?
You must be an individual or unincorporated small business owned by an individual like a sole proprietor. Corporations, limited liability companies and other corporate or partnership forms may not file Chapter 13. Many times the individual who owns the corporation is responsible for the debts, so it may still make sense to get chapter 13 advice if you own an incorporated business. You must have a regular income. Regular income includes many sources such as social security, workers compensation, pension, and in some cases other family members. You may not have more than $336,900 in noncontingent, liquidated, unsecured debt. You also may not have more than $1,010,650 in noncontingent, liquidated secured debt.
– What on earth does “noncontingent, liquidated, unsecured debt” mean?
A basic definition would be a debt with a readily ascertainable amount in which all events creating the debt occurred prior to filing bankruptcy. Further, the debt cannot be attached to any property. This would include credit cards, medical bills, repossession deficiencies, and many others. It is up to your bankruptcy attorney to help you determine what types of debts you have.
– What’s the difference between secured debt and unsecured debt? Why does it matter?
Again, it is up to your bankruptcy lawyer to help you determine what types of debt you have. Generally, a good way to think about secured vs. unsecured debt is: if you own something that will be taken away from you for non-payment, it is almost certainly a secured debt. The distinction matters because you must either provide for payment of your secured debt or surrender the collateral (let it go back to the creditor).
What is the disposable income test?
It’s pretty simple actually. Take your net income after taxes and deductions (but not necessarily the deductions for retirement and retirement loans) and subtract your average monthly expenses. The amount left over must be paid monthly into your chapter 13 plan for a minimum of 36 months. The disposable income test is simple but its application is complicated. If you are subject to means testing, those results may have some bearing on what you pay as well. You and your attorney will work together to determine your net income as well as a livable budget. If you have never done a budget, DO IT NOW! I do a budget with potential clients as part of a consultation. Creating and constantly refining a budget is essential to landing on your financial feet. Less than 15% of everyone who has come in for a consultation had ever done a budget.
– When are the payments due and where do I send them?
Your chapter 13 plan payments must begin within 30 days after your case is filed. If you have a job with a regular paycheck, you will be required to have your Trustee payments deducted from your payroll, like income taxes or health insurance. If you are self-employed or non-employer source of income, you will be required to have the Trustee payments drafted directly from your bank account.
– How do I keep track of everything in a Chapter 13?
With respect to deadlines, dates, addresses, etc., nothing is left to chance. Everything about your case is explained to you repeatedly, until you understand. All the important information about your case will also be written down for you. If you have questions after repeated explanations and written directions, don’t be shy—it’s our job to help you understand.
– Can I get credit while in chapter 13?
Probably not. If you need a loan while in Chapter 13, you must discuss the issue with your attorney.
– What if I inherit something during the plan?
In most instances, the inheritance will go to pay off your plan. Inheritances during chapter 13 can be very complicated and you should inform your attorney as soon as you are aware of the possibility of an inheritance.
– What if I cannot make my payments?
If you are unable to make your Chapter 13 plan payments, your case will get dismissed. Dismissal means that your creditors are free to pursue you again. If you are unable to make house or car payments, those lenders will eventually be free to pursue foreclosure or repossession.
– Will I lose my house or car by filing chapter 13?
If your house or vehicle is paid off, you will not lose them because you filed chapter 13. If you owe money on your house or car, you will not lose them so long as you make the payments as they come due.
– Can I keep some of my assets or debts out of the filing?
No. The bankruptcy code requires that you list everything you own and everyone to whom you owe money. Certain debts you may choose to keep and continue to pay for, like a house or a vehicle.
– What happens if I don’t list a debt?
If the debt was otherwise dischargeable, and you did not list it, the debt will not be discharged. If you intentionally leave off a creditor, you commit perjury. It is therefore incredibly important that you give us a list of all of your debts.
– After I file, who notifies the creditors?
Within a day of your case filing, my firm will contact creditors who are giving you a particularly difficult time. Within a couple of days after filing, the bankruptcy court clerk mails a notice to all of your creditors. Once your creditors receive the notice, they are not allowed to harass you anymore.
– Are bankruptcies public records? Who has access to them? Is it published in the newspaper?
Bankruptcies are public records and are reported on your credit. Anyone to whom you give permission to access your credit will know about your bankruptcy. Bankruptcy court filings are also accessible via the internet, but someone must apply for a username and password and pay for that access. The court filings are also accessible for free at the courthouse. The only newspaper in our area that I am aware publishes bankruptcy filings is called “The Daily Court Review”. The Daily Court Review publishes all sorts of public records and is often used by business people specifically for public records data. It is therefore unlikely that a friend or neighbor will know of your filing unless that person just happens to scan that paper on the day that your bankruptcy is reported.
– Will someone come into my home to inspect my property?
If you are behind on a mortgage, the mortgage company has the right to inspect the outside of the property. Otherwise, creditors do not generally inspect the inside of your house.
– Is it possible to get my credit back after my case is over?
Yes. The most common strategy is to apply for a credit card after your case is over, use it to make basic monthly purchases, never carry a balance, and pay in full each month. We will discuss some strategies with you at your consultation, as well as after you receive a discharge.
– Will bankruptcy be on my credit report? For how long?
Yes. Chapter 13 bankruptcy may stay on your credit for up to seven years from the date of filing.
– Are there any alternatives to filing bankruptcy?
There may be, especially if the amount of unsecured debt you have is not overwhelming. Easily half the people who meet with me do not need to hire me for a bankruptcy. Many families have never done a budget, and I am able to help them find ways to cut expenses and get back on their feet without use of professional help. Other folks choose to have me negotiate their debts for them. Whatever their choice, I never charge a fee for a 1 hour initial consultation. Please visit the following link for more information on Chapter 13 Bankruptcy Fees and Costs in Houston Texas.
– Do I have to go to court?
Yes. You will need to attend a Meeting of Creditors with your Trustee about 30 to 45 days after filing the case. You may also need to attend a Confirmation Hearing about 45 days after the Meeting of Creditors. It will depend which judge you have as to whether you will need to attend the Confirmation Hearing.
– What happens at the Meeting of Creditors?
At the Meeting of Creditors, your Chapter 13 Trustee will swear you in and ask you questions based on the papers filed in your case and the documents we provided to him. The meeting is conducted in a small meeting room, I will be there with you, and it usually takes less than 20 minutes. Prior to your creditors’ meeting, I will mail you a map to the courthouse, and we will send you a letter about 3 to 4 weeks before the meeting so you can plan to attend and take off work, if necessary.
– I have a simple case, shouldn’t I just do it myself or use a petition preparer or paralegal?
There is no such thing as a “simple” bankruptcy, especially under the new law. Your particular set of circumstances (what you own, what you earn and spend, who you owe, what caused you to fall behind, etc.) can significantly effect your bankruptcy case. Only a skilled attorney can interview you and help you apply the facts of your life to the bankruptcy laws. Paralegals and preparers cannot give you legal advice or go to court with you. Paralegals and preparers cannot fight a creditor for you if that creditor contests your case in some manner. Most importantly, paralegals and petition preparers do not have to answer to any regulatory entity, whereas lawyers must comply with the ethical obligations and competency requirements of their state bar. Any mistake a paralegal or petition preparer makes, could end up costing you thousands of dollars or the loss of property. It is also very unlikely that you would have any rights against them if they do make a mistake. You would likely save some money early, only to learn that you lost much, much more later on.
– Wouldn’t it be cheaper to work with a debt counselor, paraprofessional or consolidation service?
Probably not actually. Most of the people we meet with who have tried to use a consolidation service have paid many many thousands of dollars, far more than what we charge.
– How does chapter 13 differ from a private debt consolidation service?
The most important difference is that Chapter 13 provides guarantees where a debt consolidator cannot. With few exceptions, the filing of your case guarantees that your creditors back off. A debt consolidator can only request that your creditors leave you alone—there is no law forcing them to give you peace. If you comply with the bankruptcy law and do what’s asked of you, you are guaranteed to stop paying interest on your credit debt (in very very rare instances we may offer interest to these creditors as part of your overall plan). A debt consolidator may only request a reduction in interest and many creditors will not abide by agreements. If you complete your plan you will receive a discharge of all your unsecured debt. A debt consolidator may not work with certain of your creditors.
– How long does the process take?
Chapter 13 takes 3-5 years to complete.
– How do I get a copy my credit report?
There are many places online to get your credit report. Amendments to the Fair Credit Reporting Act allow consumers to get a copy from each of the three major reporting bureaus for free, once per year. Click here to go the government site to attain your copy. Be sure that you do not sign up for credit monitoring if you do not want it.
– What if I am married?
If you are married, you have the option of filing with or without your spouse. If you have a joint debt with your spouse and you file without your spouse, your spouse will become solely liable for that particular debt.
-What about student loans?
In most instances, government student loans cannot be wiped out through bankruptcy. There are some exceptions on how to deal with falling behind on student loans however; read our other page on student debts here and be sure to discuss your student loan with your attorney.
– I filed before, may I file again?
Most likely. The real issue is whether you will get a discharge of your debts. If you filed previously, it’s very important to inform your attorney of any previous filings.
– Can’t I just make small payments on my credit cards and eventually catch up?
You could try, but it is unlikely that you will ever pay off your credit cards in full. If you have $15,000 in credit card debt, with an average interest rate of 17% and pay $300 per month, it will take you 7 years and 4 months to pay off the debt, and you will have paid over $11,000 in interest. If you’ve fallen behind on your cards, and your average interest rate is 27%, it would take you approximately 12.5 years to pay off the debt at $350 per month!
– What happens to people who co-signed my debts?
If you file bankruptcy, in most instances, anyone who cosigned for you will become solely liable on the debt.
– But don’t I need good credit to live?
Think about it: other than the purchase of a house or a car, there really is no need for credit. In some instances, filing bankruptcy improves credit. In all instances, your credit will slowly improve after the bankruptcy is complete. If you are worried about no longer having access to credit, I will discuss this issue with you at your consultation.
– Is it immoral to file bankruptcy? Isn’t it only “deadbeats” who file?
It is NOT immoral to file bankruptcy. The laws are in place to give honest people who have fallen on hard times an opportunity to get a fresh start. My clients are not “deadbeats”. They are everyday people who have suffered a job loss, gone through a divorce, or have been overcome by medical bills. You are who you are. You are not who you owe.
– Will my utilities be turned off?
Bankruptcy usually cannot help you with your utilities. If you don’t pay those bills, bankruptcy ultimately cannot prevent a utility from shutting you off.
– Will bankruptcy take care of back-due child support?
No. Child support cannot be wiped out in bankruptcy. You can, however, use chapter 13 to help structure your payments for back-due child support.
– Can I go to jail if I don’t pay my debts?
– Will bankruptcy stop wage garnishment?
Yes. Bankruptcy will stop a wage garnishment and in most instances “unfreeze” a frozen bank account. If you are experiencing a wage garnishment or frozen account, be sure to bring all documents related to these issues to your consultation.
If you’d like more information about Chapter 13 bankruptcy or would like to discuss your personal situation, we are here to help. Call us to arrange a free and confidential consultation on 281-847-4345 and get immediate assistance.
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