What is Chapter 13?

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If you are about to lose your house or car, a Chapter 13 bankruptcy might save it. The bankruptcy attorneys of Fears | Nachawati can stop many foreclosures -- but we need at least a week before the sale to file all the documents. Contact us immediately to discuss whether a Chapter 13 bankruptcy can work for you.

How Chapter 13 Works

Chapter 13 bankruptcy is known as the "wage earner's plan" meant for people who make a reasonable income but are overwhelmed by debt and late on house or car payments. The bankruptcy court consolidates all of your debts, and you are put on a strict schedule of payments for 3-5 years. You make payments to a trustee, who then pays your creditors. At the end of that period of time, any remaining debts are "discharged," or wiped clean.

Keeping Your Property

The main advantage of a Chapter 13 over a Chapter 7 bankruptcy is that you get to keep much of your personal property. In Texas, this includes a home and a vehicle for each adult in your household of driving age. It also includes bank accounts, retirement accounts, and other assets that are deemed exempt. (See also Saving Your Home and Car and Protecting Your Personal Property.)

Lower Payments

When going through Chapter 13 bankruptcy, you have to keep making payments. But for many secured debts, which include mortgages, car payments, and anything else that involves collateral, you can reschedule payments so that they are lower each month.

When you file for bankruptcy you can stop harassment, foreclosures, repossessions and lawsuits and be allowed to keep your home, your car, assets and wages. In order to better understand your bankruptcy options, we will take a look at the two most common bankruptcy options for individuals:

Chapter 7

In a chapter 7 bankruptcy case the bankruptcy trustee gathers and sells the debtor's nonexempt assets and uses the proceeds to pay creditors. Part of the debtor's property may be subject to liens but will allow the debtor to keep certain "exempt" property. A trustee may liquidate the debtor's remaining assets therefore when you file for a Chapter 7, you may lose property. Once the debts are discharged, a debtor is no longer obligated to pay them.

Chapter 13

A chapter 13 bankruptcy is also known as a wage earner's plan because it enables individuals who can provide proof of a regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years that is dependent on the debtor’s income. Payment plans cannot exceed a period longer than five years. During this time the law forbids creditors from any form of collection effort.

Am I eligible to file Chapter 13 bankruptcy?

One of the main criteria that determines whether you are eligible to file Chapter 13 bankruptcy is the amount of debt you currently have. To be eligible to file Chapter 13 bankruptcy, you must have less than $336,900 in unsecured debt and less than $1,010,650 in secured debt.

In order to file for Chapter 13 bankruptcy, you must also reside in the United States and have a regular income. Specifically, you must be able to show the court that you have sufficient income to meet your repayment obligations. Additionally, you must have received credit counseling within the preceding 180 days.

Other criteria that must be met in order to file for Chapter 13 bankruptcy are:

• You must not have been granted a Chapter 7 bankruptcy discharge in the past 4 years.
• You must not have been granted a Chapter 13 bankruptcy discharge in the past 2 years.
• You cannot have had a bankruptcy petition dismissed within the past 180 days because of failure to appear before the court, failure to comply with a court order or a voluntary dismissal after your creditors tried to recover property through the bankruptcy court.
• You must have filed both your federal and state income tax returns for the four years preceding your bankruptcy filing date

Passing the Means Test

The Means Test is a formula designed to identify debtors that can afford to pay some of their unsecured debts (for instance, credit card debt) and encourage repayment of these debts through a Chapter 13 repayment plan. Debtors that “fail” the Means Test are disqualified from filing Chapter 7 bankruptcy.

The Means Test is actually two tests. The first part of determines whether your current monthly income is less than your state’s median income for a household of your size. The current state median income figures can be found at the U.S. Trustee’s website: http://www.usdoj.gov/ust/eo/bapcpa/meanstesting.htm

If your family’s income is less than your state’s median income for a family of your size, you PASS the Means Test. There is no other testing and you can proceed with a Chapter 7 bankruptcy.

If your family’s income is more than your state’s median income, you must complete the Means Test worksheet to calculate if you have (or should have) money to repay unsecured creditors. In the end if you are able to pay a significant portion of your unsecured debt, you will FAIL the Means Test and cannot file a Chapter 7 bankruptcy.

The truth is that very few debtors fail the Means Test. Many debtors earn significant incomes and still qualify for Chapter 7 bankruptcy. Debtors with large monthly secured debt payments (e.g. house, car) often pass the Means Test as there is no extra money at the end of the month to pay unsecured creditors.

If you are contemplating a bankruptcy filing, it is in your best interest to consult with an experienced bankruptcy attorney as soon as practical. The Means Test is a new and complex feature of the bankruptcy laws, and, consequently, its application and interpretation varies from jurisdiction to jurisdiction. By examining your case early, a skilled bankruptcy attorney can identify whether you are able to pass the Means Test now or in the future. To speak with a skilled bankruptcy attorney simply call Fears | Nachawati toll free at 1.866.705.7584 or e-mail us at info@fnlawfirm.com.

Will Bankruptcy Ruin My Life?

Clients have many questions during the initial appointment with a bankruptcy attorney. The most common concerns are losing property, and rebuilding credit after the bankruptcy case is over. Occasionally someone will ask a straight-forward question: “Will filing a bankruptcy ruin my life?” This powerful and important question deserves a straight-forward answer:

No!

The bankruptcy laws are widely misunderstood by the average American. The purpose of bankruptcy is to put overwhelming financial difficulties behind and give an honest person a fresh start. Many Americans have taken advantage of a fresh start to improve their lives and have made tremendous contributions to our society. Perhaps the best way to illustrate the power of bankruptcy’s fresh start is to look at some famous examples:

Actor Burt Reynolds filed for bankruptcy in 1996 after his divorce from Loni Anderson. He listed more than $10 million in debt, and his dinner theater in Jupiter, Florida, was foreclosed on and his ranch was sold. Never one to quit, Reynolds continues to act in movies and television. Burt Reynolds was nominated for an Academy Award for Best Supporting Actor for his performance in the 1997 film Boogie Nights and won a Golden Globe Award for the movie.

Named as one of Time Magazine's "100: The Most Important People of the Century," business titan Henry Ford didn't always have the Midas touch. By 1901 Ford had unsuccessfully managed his first automobile company into bankruptcy. Two years later he founded Ford Motor Company.

Walt Disney may have had vision, but he needed a second chance to make the Happiest Place on Earth a reality. After his first film company failed, Disney filed bankruptcy in 1923. Five years later Disney introduced the world to Mickey Mouse and the Disney empire was born.

In 1875 a young businessman saw his horseradish company go bankrupt. Undeterred, the young man formed a new company in Pittsburgh, PA with his brother and cousin making ketchup. That company was a success for H.J. Heinz and in 2007 the H.J. Heinz Company had over $10 billion in revenue.

Other famous people who have used the bankruptcy laws to help them recover from financial difficulty include: singer Willie Nelson, talk show host Larry King, actress Kim Basinger, and even billionaire Donald Trump!

Don’t let financial difficulty stand in the way of your dreams! Bankruptcy will not ruin your life; it is a tool to help you build a better future for yourself and your family.

Bankruptcy Is More Affordable Than You Think

Many people hesitate to hire a bankruptcy attorney is because they think that it will be very expensive. In actuality, the fees involved are not high and can save you thousands in the long run.

Many attorneys are very flexible in helping you get started in your bankruptcy. The cost of attorney fees varies widely depending on the issue surrounding your personal bankruptcy case. Some individuals have a basic Chapter 7 case while others have a complex Chapter 13 case that includes a home loan and IRS debts.

What needs to be considered carefully is that when you have a skilled, experienced bankruptcy attorney representing you in your bankruptcy you can save money on issues such as:

• Discharge of debts
• Exemptions for second mortgages
• Assistance in stopping creditors take collection action against your assets

Additionally, it is crucial that the bankruptcy forms are filled out appropriately so that the bankruptcy trustee will not object to your proposed payment plan or debts to be discharged in your petition.

Understanding Chapter 13

There are multiple types or chapters of bankruptcy. Chapter 13 bankruptcy is frequently also known as reorganization bankruptcy and also as a wage earner's plan. It can be used by individuals as well as unincorporated businesses. This allows the filer to structure a repayment plan for their financial obligations which is supervised and approved by the bankruptcy court. Under this plan, you are given a period of time, typically three to five years, to get your debt repaid. After you have filed, your existing creditors cannot call or harass you, and are not permitted to start collections proceedings against you.

This type of bankruptcy may be better suited for some people, although each case is different. For example, with Chapter 7 bankruptcy, the consumer's debt is almost completely eliminated. While this sounds like good news, the caveat is that your assets will be sold in order to repay the debt. By contrast with Chapter 13, while your debt remains, it is reorganized so that you can comfortably make payments and you are allowed to retain your assets.

While many people may view this as a debt consolidation loan, it really is not a loan in any sense of the word. The debt remains, only a restructured repayment plan is defined and the money is distributed to the creditors via a trustee appointed by the courts. Although the consumer no longer has a contract with the creditors, the fact that the debt still exists cannot be overlooked. Certain types of debts are given a priority and must be paid in full.

If you have a lot of assets like a house that you do not want to go through foreclosure on, this type of bankruptcy can protect that. If foreclosure proceeding are already in place, the bankruptcy will stop those from progressing further. You may have delinquent mortgage payments which need to be brought up to date, but they may lose their delinquent status. You must also keep up with future mortgage payments.

The basis for this type of reorganization is that your debt is restructured and rescheduled to make it easier for you to comfortably make your payments. This is done through a variety of methods, including lowering the interest rate or extending the term of the loan to result in lower payments. The goal here is to allow you to make the payments, but with lower payments so that you can make them on time.

There are certain limitations with Chapter 13 bankruptcy in terms of the amount of debt that can be restructured. Your total of unsecured debt must be less than approximately $307,000 and the sum total of your secured financial obligations must be less than approximately $923,000. These figures are adjusted occasionally to be in sync with the consumer price index.

Before you are eligible to file bankruptcy, you must first go through credit counseling. The credit counseling must be through an agency that is approved by the United States Trustee's office. Although the companies may charge a fee for their services, if you are unable to pay their fee, they must reduce the cost and make adjustments for your individual situation.

The bottom line is that this allows individuals some financial breathing room to repay their debts and does not require liquidation of their assets. A viable repayment plan is worked out so that debts can be repaid. This works for consumers who can still make payments but have found themselves with too much debt to handle at a particular time in their lives.

Contact Us

Contact us soon for a consultation with the experienced bankruptcy attorneys of Fears | Nachawati. We can answer your questions and analyze your situation. We maintain office hours 6 days a week and can meet with you in the evenings or on weekends. Flexible payment plans are available.

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We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.