Learning about what a Chapter 13 bankruptcy can do for you most likely will be a pleasant surprise. Don’t believe all the BS that you may have heard at the water cooler. Only a qualified bankruptcy attorney can you give you accurate details and recommendations about your specific case. Otherwise, people dealing with large amounts of secured and unsecured debt may fall prey to misinformation about filing a Chapter 13.
Certainly, Chapter 13 bankruptcy is not necessary or practical in every situation. However, for some people, Chapter 13 offers a reliable way to restructure personal finances. It can also be a better solution than Chapter 7 bankruptcy.
The goal of any person contemplating Chapter 13 should be to understand how filing for this type of bankruptcy can affect their lives. When you meet with a bankruptcy attorney from my office, we will go over both the pros and cons of filing a Chapter 13 bankruptcy.
Chapter 13 Consideration #1: Mortgages
A Chapter 13 bankruptcy case stops home foreclosures immediately. All the past due payments are spread out over the repayment plan, which is usually anywhere from three to five years. The mortgage company must go along with a federal judge’s decision to accept the Chapter 13 case, so the homeowner can lower the stress and worry of being underwater or losing a home. To spell it out, we don’t need your mortgage company’s permission for you to file Chapter 13.
With this being said, all mortgage payments still have to be paid on time per the Chapter 13 plan. If a wage earner cannot keep up with the payments, the mortgage company can file a motion for relief from the automatic “stay” of payments. If the mortgage company’s wishes are granted, the foreclosure process can once again start up. Therefore, it is critical for those in Chapter 13 bankruptcy to make sure they adhere to their payment plans, even if they have to use most of their disposable income.
Chapter 13 Consideration #2: Unsecured Debt
In Chapter 13, unsecured debt including medical bills may be wiped clean. Whether you can or cannot eliminate unsecured debt in your case will depend on your monthly income. The creditors have no say if a bankruptcy court grants a Chapter 13 case. They must go along with the law.
Even in a situation where a client has to pay back some or all of the unsecured debt, there will no longer be any interest or late fees. For example, a person with $25,000 of credit card debt will most likely pay $5,000 per year or more in interest on credit card debt outside of bankruptcy. In contrast, a person in a Chapter 13, will pay zero interest and late fees on credit card/ unsecured debt.
Chapter 13 Consideration #3: Credit Score
Unlike with a Chapter 7 bankruptcy, a Chapter 13 bankruptcy falls off the credit report within seven years. Plus, staying up to date on all repayments can keep the credit score going in the right direction.
Most potential clients that I meet with who are concerned about their credit score do not realize how low it already is before meeting with me. Foreclosures and repossessions make a tremendous hit on credit scores. Ignoring the problem will never raise a credit score. In the long run, filing bankruptcy and taking care of the mountain of debt will raise a credit score.
Chapter 13 Consideration #4: Vehicle Loans
Many Chapter 13 filers have a car loan that they have stopped paying or are only paying a small amount towards each month. Chapter 13 allows filers to reduce their car note interest rate to the low single digits. Not surprisingly, this reduction can pass along tremendous savings over time and be a huge benefit. For example, it is not uncommon for me to see clients who owe $20,000 on a car with a 30 percent interest rate. In this fact scenario, the client is paying $6,000 a year in interest. In most Chapter 13 cases, we pay back car creditors with 6 percent interest. Six percent of $20,000 is $1200. Do the math. You can save a lot of money on car interest in a Chapter 13 case.
The flip side of this advantage is that if a debtor does not complete a Chapter 13 case or follow the payback schedule, the interest will be reinstated in full. Sometimes, this occurs after a debtor loses income and can no longer afford Chapter 13 payments. Usually, those same people refile later when they get back to work. Anyone in Chapter 13 whose income suddenly plummets should immediately contact their bankruptcy attorney for counsel.
Chapter 13 Consideration #5: Child Support
Child support payments are often included in the budget of someone thinking about filing for Chapter 13. But this type of debt will not be discharged or lowered by a federal court. It will need to be paid as expected. In fact, any missed child support payments will have to be calculated into the Chapter 13 repayment plan.
Chapter 13 Consideration #6: Student Loans
Student loans cannot be discharged in bankruptcy. In the 1990s, we could discharge student loans just like any other debt. Once the laws were changed, the cost of college has soured……….surprise surprise. The laws need to change. Please run for Congress and I will vote for you.
Chapter 13 Consideration #7: Attorney Fees
Every bankruptcy attorney has a different way of looking at fee arrangements. At the Law Office of Jeffrey B. Kelly, attorney fees are paid through the Chapter 13 plan payment schedule. Because the fees are not paid upfront in most cases, debtors are relieved from requiring one large chunk of money to retain a lawyer’s assistance. However, if you are self employed, you should expect to pay a large amount upfront because your case will be much more complicated than an average case.
If you feel that Chapter 13 bankruptcy might be the right choice for you, or you have more questions about bankruptcy, call the Georgia-based Law Office of Jeffrey B. Kelly at (770) 809-3099 or contact us on our website. Our knowledgeable team is ready to advise you on the best bankruptcy solution for your situation.