This chapter of the Bankruptcy Code provides for adjustment of debts of an individual with regular income. Chapter 13 allows a debtor to keep property and pay debts over time, usually three to five years.
A Chapter 13 bankruptcy is known as a “wage earners” bankruptcy. You must have some sort of stable income (wages, social security, or stable self-employment income) to file. Anyone with stable income can file for Chapter 13 bankruptcy — in other words, you can’t make “too much money” to qualify.
You may qualify for Chapter 13, even if you do not qualify for Chapter 7. Actually, Chapter 13 can be a better bankruptcy than Chapter 7 for several reasons, such as reducing vehicle debt, paying tax debt interest and penalty free, and more. An experienced attorney that routinely handles both types of bankruptcy can advise you as to which bankruptcy is best for your circumstances.
In Chapter 13 bankruptcy, your debts are not immediately discharged. The bankruptcy law allows for the creation of payment plans with durations of 3 to 5 years. The goal in Chapter 13 is to obtain discharge of your debts upon completion of your repayment plan. Although you do pay more in Chapter 13, you are given greater asset protection in return.
The same debts that can be discharged in a Chapter 7 can also be discharged in a Chapter 13. In fact, Chapter 13 can discharge some debts that Chapter 7 cannot:
– Chapter 13 can discharge some marital debts, where Chapter 7 cannot;
– Chapter 13 can reduce secured debts on items you want to keep, like a car or household goods;
– Chapter 13 can erase some 2nd mortgages on your home;
– Chapter 13 can help you pay back tax debt interest and penalty free. Chapter 13 can be a tax debtor’s “best friend”!
The process is complicated, but as experienced Chapter 13 bankruptcy attorneys, we not only assist you with filing your bankruptcy petition and plan, but help you during the entire plan period to make any adjustments needed to keep you on track to receive your discharge of debt.
The same exemptions apply in Chapter 13 as in Chapter 7. As stated above, Chapter 13 allows you to keep property, even if not fully protected or exempt, because you pay the value of what the creditors could have received in a “hypothetical liquidation” under Chapter 7.
For example, if you own a home and the value is $100,000 and you owe $75,000, that is $25,000 in equity. Missouri law only allows you to exempt or protect $15,000 of equity. In Chapter 7, you might lose your home. However in Chapter 13, you would pay a part of the $10,000 to your creditors (let’s say you owe $25,000 in medical and credit card debt), and the balance of $15,000 of debt would be erased or discharged at the end of your repayment period under Chapter 13.
Keeping Secured Debts and Property
In a Chapter 13, you do not reaffirm the debt, instead, you reorganize the debt’s repayment. For most homes, your monthly payment is not affected by a Chapter 13. You continue to pay the regular monthly payment like nothing ever happened. For automobiles, the payment can be reduced to the value of the vehicle, if you owned your vehicle for more than 2.5 years.
For example, say you owe $15,000 on a vehicle worth $10,000. In Chapter 7, you would have to reaffirm or keep the entire $15,000 debt, if you want to keep the vehicle. In Chapter 13, you reorganize the debt to pay only $10,000 to keep the vehicle. Chapter 13 also almost always reduces high interest rates on vehicle loans.
Tax Consequences of Chapter 13
The discharge of debt is not taxable. Consult a tax professional for further details on your specific situation.
How is my monthly plan payment determined?
In a Chapter 13 case, you will have to make monthly payments toward what you can afford to pay to your creditors, not what you owe. Debt settlement companies compute your payment to them based on what you owe. We compute your Chapter 13 payment based on what you can afford.
For example, if you owe $20,000 in credit card debt, debt settlement may require $500 per month to settle or pay off the debt. If you can only afford $100 per month, that is all you will pay in Chapter 13. If you owe $50,000 in credit card and medical debt, debt settlement might require you to have to pay $1,000, based on what you owe. Again, in Chapter 13, if you can only afford to pay $100 per month, that is all you pay.
Who determines how much I can afford to pay?
Our team will work with you to develop a budget and show the Court what you really can afford and still have enough money to live on. As experienced bankruptcy attorneys, we have helped thousands of people develop realistic budgets they can live on, and these budgets are accepted and approved by the Court.
Many inexperienced or less-experienced attorneys will have you paying too much for your monthly Chapter 13 plan payment. They do not know all the factors that go into developing a successful budget. That is why the national completion rate for Chapter 13 cases is 33-50%. Our success rate for completion of Chapter 13 cases is over 85%. Some cases do not go through for reasons beyond everyone’s control. But we have helped thousands of people erase or reduce millions in debt, and we can help you.
How can the balance of my attorney fees be paid through the plan?
One of the best things about Chapter 13 is that when your case is filed, the balance of any remaining attorney fees can be paid from your monthly plan payments, interest free. Additionally, as work is done on your case during the duration of your bankruptcy, any fees for new work that you need, such as Court permission to refinance a home or buy a newer car, can be financed through your plan payments. This allows you to receive the legal services you need in your case without coming up with more money, and without fear of losing your case and not getting your debts discharged.
How long will my Chapter 13 plan last?
Under the law, a Chapter 13 plan of repayment can last from three to five years. The time is based on many factors. The best way to determine the length of your plan is to contact our office for a free office consultation.
If you are a Missouri wage earner who is still unable to meet your monthly payments, call the Tinsman Bankruptcy Team at (417) 4NO-DEBT, or use the short form below, to schedule a free initial consultation. We can handle your Chapter 13 bankruptcy accurately, quickly, and for a fair, upfront price.
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