How Can Chapter 13 Bankruptcy Help You Be Debt Free
When most people first learn of chapter 13 bankruptcy they have a lot of questions about what the process is like, what to expect and whether it is right for them. Here are 13 facts you need to know about chapter 13 to help you be debt free and determine if Chapter 13 bankruptcy is for you.
(1) Debtors keep control of their assets. They run their businesses. There is no trustee tasked to sell assets. If an asset is worth more than the amount allowed to protect it, then the consumer has to pay for the value through their plan.
(2) Repayment to creditors can be little or even nothing. It depends on the debtor’s income and the value of their assets. I have filed cases where the consumer pays $1 to unsecured creditors like credit cards, but the results will vary based on available disposable income and household size.
(3) Chapter 13 plans can be changed during the case. If income falls or is temporarily interrupted, the plan can be changed to accommodate the change by filing a motion to modify your payment plan. If your income falls significantly you could always convert your case to a Chapter 7 bankruptcy if you qualify.
(4) The case can be dismissed at any time. You can get out of chapter 13 bankruptcy if you want at any time, unlike Chapter 7 bankruptcy where you are generally locked into the case.
(5) The bankruptcy automatic stay protects the debtor for the 3 -5 years while in an active chapter 13 plan. No foreclosures, no repossessions and no garnishments will be able to hurt you moving forward.
(6) Mortgage defaults can be cured over as long as five years. Additionally you can even request a loan modification while in the Chapter 13 bankruptcy and then dismiss your case once approved if you feel you don’t need the bankruptcy after obtaining a loan modification. Chapter 13 bankruptcy filings can also be very useful if you need to stop a foreclosure sale immediately but don’t intend to stay on the repayment plan. This helps if you need to buy some time to short sell the property or make other arrangements moving forward.
(7) The interest rate on car loans can be reduced to today’s market rate. This is called a cram down and the rate used is called the till rate which is about 3.25%. This can only be done if the car was purchased more than 910 day prior to filing.
(8) Mortgage liens that are totally underwater can be eliminated forever in chapter 13 bankruptcy. This usually applies to 2nd mortgages that can be stripped away by filing a motion to strip the lien. So if your first mortgage is worth more than your home, then you may be able to strip the second mortgage which would allow the second mortgage to be stripped and treated like a general unsecured creditor who doesn’t need to be paid back in full.
(9) The IRS has to go along with the repayment terms in your plan, without interest. If the taxes owed are recent, then they would have to be paid in full over the duration of your chapter 13 plan.
(10) Tax debt that is older than 3 years from the date it was due may be discharged in Chapter 13 bankruptcy as long as your tax returns have been filed more than 2 years ago and your taxes have not been reassessed recently. New taxes are considered priority debts and must be paid in full. Older taxes can be treated as unsecured debts, just like a credit card or medical bill.
(11) Certain types of Debts to former spouses, other than support, can be discharged. This is generally not the case in Ch. 7 bankruptcy. If the monies owed is for maintenance or support of children, the debt will never be discharged. If however the monies owed is for attorney fee’s or other non support payments, the debt may be dischargeable in chapter 13 bankruptcy.
(12) If you have had your license suspended, you can get it back by filing for Ch. 13. Some penalties may need to be paid off in your plan, while others may be discharged. Your attorney will need to know about each ticket and number so that they can list them completely in your bankruptcy filing. The court or the department of licensing will need to be notified of your filing and you can provide your case number once your case is filed.
(13) Attorneys fees for the case can be paid after filing. Although most attorney’s charge a fee prior to filing but it may be 1/3 of the total cost. Additionally the court filing fee of $310 needs to be paid, but in Washington the court allows you to pay only $100 of the filing fee at the time of filing if you have not had a previous case dismissed without paying the full filing fee.
Additional advantages and Considerations to filing Chapter 13 Bankruptcy
When a consumer files for Chapter 13 bankruptcy, you are eligible to file another Chapter 13 case, if you need to, far more quickly than if you had filed a Chapter 7. Additionally you can file a Chapter 13 bankruptcy right after a Chapter 7 bankruptcy case if you have to deal with some non dischargeable debts through a repayment plan, such as mortgage arrears.
Your Chapter 13 filing generally drops off your credit report three years earlier than if you had filed a Chapter 7 bankruptcy. It’s gone two years after the Chapter 13 discharge in a five year plan.
Unlike debt settlement arrangements, your repayment plan is enforced by a federal judge. All creditors are required to go along. No creditor can elect not to be involved and opt out of the plan. Whether a creditor files a claim or not, the creditor’s claim is likely going to be paid or discharged at the end of your chapter 13 plan. Chapter 13 bankruptcy can be more beneficial if you want to feel safe and get the protection of having the automatic stay in place. That means that creditors cannot call or attempt to collect on debt while you are in the plan.
If you live in Washington state and have additional questions about whether a chapter 13 bankruptcy is right for you, give Symmes Law Group a call at 206-682-7975 to learn about your options.