Chapter 13 Bankruptcy FAQs

The biggest advantage with a Chapter 13 bankruptcy filing is that it allows a debtor to catch up on debts which he or she has fallen behind without paying late fees, penalties, or interest for a fraction of the actual amount owed in many cases. This will allow a debtor to keep all of his or her property and pay back only a portion of what he or she actually owes. Much like in a Chapter 7 bankruptcy, the debtor’s credit score should rise dramatically in time after filing the petition. A Chapter 13 can also be used to “strip” second or third mortgages if the property is worth less than what they owe on a primary mortgage, absolving the debtor of all responsibility to pay the second mortgage. A Chapter 13 can be used in a strategic way to keep property by stopping sheriff sales, and also to create an automatic stay to stop all debt related lawsuits against the debtor.

Yes, a bankruptcy will stop a foreclosure or sheriff sale by an automatic stay. However, a debtor may not simply file a Bankruptcy to stop the sheriff sale if that person knows he or she does not meet the requirements to complete the bankruptcy. For example, if a debtor makes too much income and knows they will not possibly pass the means test, the debtor may not just file Bankruptcy to receive the automatic stay. In addition to this requirement, a debtor should plan for a manageable amount of time to file. Before filing, all information must be given to the attorney including a copy of the credit counseling certificate that may take some time to process.

Except in certain extreme hardship circumstances, school loans are non-dischargeable. One of the most common circumstances that would count as hardship extreme enough to discharge student loan debt would be a medical condition that leaves a person unable to work. Sometimes, a personal loan is made to look like a student loan. Even though you may have used that loan to pay for school, it is not necessarily non-dischargeable.

In addition to Attorney’s Fees, the court fee for a Chapter 13 is $310, no matter if you are filing individually or jointly. In addition to the $310, the Trustee in a Chapter 13 will charge a 10% fee of your overall plan.

No. While a debtor may not use a credit card for major purchases (such as major appliances, expensive electronics, furniture sets, etc.) within 60 days of filing. There is no limit on the amount of credit card debt that can be discharged in a Bankruptcy. The use of a credit card for essential items such as gasoline, groceries, or other basic necessities will most likely not affect the ability to file.

Although some of the requirements for information that must be submitted by both debtors and attorneys have changed, a person in debt certainly may still declare Bankruptcy. Some of the changes to Bankruptcy laws include the requirements for Debtors to include and a Pre-Petition and Post Petition Credit Counseling Certificate. Attorneys must now include a Financial Means Test calculation and more specific income verification. Although this does make filing Bankruptcy more of a meticulous process, it does not in any way restrict the ability to declare Bankruptcy.

A debtor should consider a Chapter 13 Bankruptcy if they are behind on making payments on secured debt such as a car or mortgage (referred to as arrearages), and intends to keep that property. This form of Bankruptcy is usually used when someone is too far behind on mortgage and/or car payments and cannot get caught up on their own. When a person declares Chapter 13 Bankruptcy and intends to keep the property that they are currently in arrears with, the debtor must continue to pay normal mortgage and car payments, but must also pay an additional payment to a Trustee based on the debtor’s excess income. That additional payment first pays back arrearages of secured debt, tax arrearages, a Trustee Fee, and Attorney’s Fees. If there is any remaining money from the plan payment, it will be used to pay back unsecured debt such as credit card bills. The amount of left over plan money to pay back unsecured debt varies based on the debtor’s excess income, and is usually a small fraction of the actual amount owed. The remaining unsecured debt is then discharged much like it would be in a Chapter 7 Bankruptcy, and the debtor no longer has an obligation to pay it. The payment plan must be spread out over the course of 36 to 60 months (3 to 5 years), and payment is made to the Trustee, who is a judge appointed to the Bankruptcy. The length of the plan is determined by how much excess income a debtor will receive, and how long it will take for the debtor to pay back the arrearages. As long as the debtor stays current on the mortgage/car payments and plan payments, the debtor retains all property within the plan. Another advantage is that the payment is made without interest accruing and usually for a fraction of what the person owes. Therefore, payments are much more manageable than they were before declaring Bankruptcy.

No! Although several companies advertise that they can negotiate your debt down, in most cases they do not work. These companies may charge you a flat fee or a fee every month. Additionally, these companies try to alleviate your debt by making you take out a home equity loan that secures itself against your home. Furthermore, when these companies renegotiate your debt down, it creates a taxable interest that cannot even be discharged if you later decide to declare Bankruptcy. These companies advertise pennies on the dollar, but that is not the case. For example, if you owe $50,000 and they negotiate down your debts to $10,000, you will receive a 1099 tax form where you have to claim the $40,000 as an unearned income. On top of paying the non dischargeable taxes on this amount, you will also have to pay the fees that the company charges and still pay on the amount left over. In comparison, all secured debt will disappear and there will be no tax obligations on the discharged amount if oyu file a bankruptcy. All that will be owed are the attorney and court filing fees (at a much lower price than the fees for consolidation).

Yes, a Bankruptcy will remain on your credit report for 7-10 years. However, due to the fact that Bankruptcy is only one of many factors, in many cases filing Bankruptcy may end up raising your credit score dramatically. Once we look at your credit score, we will be able to give you an estimate on how your score will look post-petition.

As soon as the attorney receives all information discussed above, and the debtor finishes the credit counseling certificate, a Bankruptcy may be filed.

Proof of income (pay advices) for 6 months prior to the Bankruptcy filing, proof of insurance (home/auto), copies of medical bills, any debts not listed on a standard credit report, and Tax Returns for the two years prior to filing for the Bankruptcy.

The methods which people may use to find out about a Bankruptcy are limited. However, generally people can access court proceedings, 341 meetings, and information on the docket of the court in which the Bankruptcy is filed.

There is a statutory period of time which must lapse before a person can file another Bankruptcy, and a debtor may not have a previous Bankruptcy dismissed with prejudice. The statutory period between Bankruptcies varies based on the chapter of bankruptcy you filed in the past. A Chapter 7, for example, requires 8 years to pass before you may file another Bankruptcy.

A 341 meeting is also referred to as a “meeting of the creditors”. Approximately 4-6 weeks after filing Bankruptcy, the Trustee will schedule the 341 meeting. Here, the Trustee will ask multiple questions in regards to your debt and examine the Petition filed with the court. These questions by the Trustee will require full disclosure on income, expenses, and assets.

No. If you file Bankruptcy, your spouse does not need to do so as well. However, if one spouse does not file, that spouse is still responsible for paying any debt for which they are listed as a debtor. So it could be advantageous if all the debt is in one spouse’s name only. However, if the debt is in both names, it would cost significantly less to file together than to file separately at different dates.

The calculation to determine eligibility for Bankruptcy takes into account many factors such as income, expenses, dependants, and secured debt payments. Making a generalized statement about whether or not someone can file is almost impossible. In addition to the use of the means test, the Trustee will also look at an expected future income and expected future expenses. The simple truth is there is no hard line which a debtor must be over or under to determine if a Bankruptcy is possible.

The Means Test is used to determine if a debtor has too much income to declare a Bankruptcy based on the average cost of living expenses and income for the county in which the debtor resides. The means test also incorporates the debtor’s number of dependents, spouse’s financial position, number and age of debtor’s vehicles, medical expenses, etc. This test is much like a tax return, and determines eligibility for bankruptcy.

In addition to Attorney’s Fees, the court fee for a Chapter 7 is $335 whether you are single or filing jointly.