A Chapter 13 is what is called a “payback” bankruptcy. But this does not mean that you should expect to toil and grind over the next five years in order to finally payback that dentist who yanked out your tooth when you were still a teenager! In fact, usually only a portion of a debtor’s unsecured debts are paid back when he or she files a Voluntary Petition under Chapter 13 of the Bankruptcy Code. In a Chapter 13 case, your attorney will prepare a feasible “Plan,” based on your disposable income. As such, the expenses you have, the size of your household, whether you have any medical conditions, and many other factors will be regarded to decide exactly how much you have to pay, and when.
But why file a Chapter 13 “payback” bankruptcy instead of a Chapter 7 “liquidation” bankruptcy? There are three main reasons.
First, individuals and married couples who earn too much income may not qualify for a Chapter 7 bankruptcy. This is because the Bankruptcy Code is premised on the notion that people with the wherewithal to pay their debts back ought to do so. As such, a sizable portion of the people who file for Chapter 13 do it simply because they could not fit under the “Means Test” in a Chapter 7. However, because there are some subjective factors involved in the Means Test besides the debtor’s median income, it is important to talk with your attorney about your own particular circumstances, to properly determine if a Chapter 13 bankruptcy is appropriate for you.
Second, unlike a Chapter 7 bankruptcy, a Chapter 13 bankruptcy permits debtors to keep many valuable assets. This means that if you own a black 1967 Mustang, or if your wealthy uncle bequeathed to you a strand of pearls worn by one of Queen Victoria’s ladies-in-waiting, or if you just happen to have one too many guitars left over from your musical glory-days, a Chapter 13 bankruptcy might be appropriate for you. The thing to bear in mind here, however, is that certain assets that are not exempt may sometimes be exchanged for certain assets that are exempt. It is thus exceedingly important, prior to filing, to understand the various State or Federal exemptions which may be applicable to your assets.
Third, a Chapter 13 bankruptcy allows you to keep property, usually a home, which is in “arrears.” The way this works is that your attorney will draft a Plan which proposes a monthly payment amount to your mortgage company. This Plan will address how you intent to make your ongoing payments while also paying back the arrearage which you have accumulated. As such, it must be regarded as ‘feasible” in order to be “confirmed” by the Bankruptcy Court. This means, essentially, that you earn enough income to make the plan payment. If your mortgage company does not believe that your plan is feasible, it may choose to file a “Relief from Stay” motion that asks the Court to permit it to foreclose. The best way to get a Chapter 13 Plan confirmed is thus to have very accurate and realistic figures, and be fully prepared to explain and to justify them. Our attorneys do just that when we talk to the trustee, when we attend the 341 Meeting of Creditors, when we attend your Confirmation hearing and when we respond to any motion made in opposition to your Plan.
You should consider filing a Chapter 13 plan if you:
- Are in danger of losing a house or car;
- Have growing arrearage, but would be able to catch up if given the chance.
- Have valuable property which you want to keep and is not exempt under Chapter 7.
- You will earn enough income over the life of your Chapter 13 case to pay for your necessities and to keep up with the required Plan payments.
Call us for a consultation at +1 (206) 264-8999 and speak with one of our bankruptcy attorneys to assess your case and answer your inquiries.