Five (5) Main Reasons To File Chapter 13
- To Stop Foreclosures and Repossessions and Garnishments.
- To Give Yourself More Time To Catch Up On A House or Vehicle Loan.
- To Save Property You Could Not Save By Filing Bankruptcy Under Chapter 7.
- Because You Have Too Much Income.
- Because The Payments Are Cheaper In Chapter 13 Than Chapter 7.
1. To Stop Foreclosures and Repossessions and Garnishments:
The minute you file bankruptcy, your creditors have to stop all collection efforts….including among other things…attempts to foreclose on your house or to repossess your car. It that cool or what? Only the bankruptcy laws can do that. In Chapter 7, these things are only stopped for a few months. In Chapter 13 bankruptcy, these actions can be stopped for the entire duration of the Chapter 13 case, which can be as long as 5 years.
2. To Give Yourself More Time To Catch Up On A House or Vehicle Loan:
Not only does bankruptcy stop foreclosures and repossessions…..it also give you more time to catch up on overdue payments. Let’s say you were behind $9,000 behind on your mortgage payment. By this time, the creditor is probably refusing to take your money, and is likely getting ready to or may already have started foreclosure. Chapter 13 allows you to repay the amount you are behind (called “arrears”) in installment payments through the Chapter 13 Trustee. For example, if you are $9,000.00 behind with your mortgage, you could propose to repay that $9,000.00 without interest by making 57 monthly payments of $158.00 each. These payments are sent to the Chapter 13 Trustee, who will distribute the money to your mortgage company. Upon completion of your Chapter 13 plan, assuming you kept your ongoing payments current, your mortgage loan would be current and up-to-date.
3. To Save Property You Could Not Save By Filing Bankruptcy Under Chapter 7:
Filing bankruptcy does not mean you will lose all your property. In fact…most people who file bankruptcy don’t lose anything. Why? Because the State where you live has exemption laws to protect you. These exemption laws vary from State to State…. but basically…..exemptions laws are lists of stuff you can keep and still file bankruptcy. However, some people have too much stuff….so much so that if they file a Chapter 7 bankruptcy case, they will lose some of it. So…what can they do? The answer may be: File under Chapter 13 instead. In Chapter 13, you are given an opportunity to pay out the value of the extra stuff, that is the value above what is covered by exemptions, and to do so over the life of the Chapter 13 plan, which is usually between 3 and 5 years. Let’s say you have $5,000 in the value of property above and beyond available exemptions, and let’s say your Chapter 13 plan was going to run for 5 years. You would simply pay the extra $5,000 in to the Court, so much a month, for 5 years. This comes out to less than $100 per month…and in return….you get to keep your stuff.
4. Because You Have Too Much Income:
Sometimes, a client may simply have too much income to qualify to file a Chapter 7 bankruptcy case. This seems odd….doesn’t it? Not enough income to pay the bills….but too much income to file bankruptcy. What sometimes happens is that people get in so much debt or lose income for long enough that there is just not enough income to pay all the bills. Well…first off….bankruptcy gets rid of certain amounts of debt…and because of this….it takes less income to pay the remaining debts and basic monthly expenses. However, if there is income left over…..above what is needed to pay these remaining debts and basic monthly expenses…..then the law says “you can’t file Chapter 7″. This is called the “disposable income” test. But you can still file Chapter 13….in which case you have to pay over to the Court the extra income….but only for 36 months. But…that’s O.K. because…perhaps for the 1st time in a long time…you can actually pay your bills.
5. Because The Payments Are Cheaper In Chapter 13 Than Chapter 7:
Sometimes…when everything is tallied up, it is just cheaper each month to file Chapter 13. For instance…let’s say that you owe $15,000 on a car only worth $10,000. In Chapter 7, you would have to continue paying on the full $15,000 debt. However, in Chapter 13, you only have to pay the value of the car, which is $10,000. (This assumes the vehicle was purchased more than 2 1/2 years ago.) This saves $5,000 and likely, this would lower the monthly payment for this car. And, say you have a second mortgage for $30,000 on your house, but there is no value in the house above the payoff of the first mortgage to secure it. It is possible in Chapter 13 to “strip off” this mortgage. In Chapter 7, it is not. Stripping off this mortgage in Chapter 13 would eliminate the second mortgage payment. You can see where….in certain circumstances….filing Chapter 13 may save more money than Chapter 7….making Chapter 13 the best choice.
Disclaimer: The above is an oversimplification of the law. The law is complex and each situation is different. If you need to file bankruptcy…or think you might…your best bet….to see what’s right for you….is to…
