Chapter 13
Although permission from the Court is needed to buy or sell property, it’s generally not difficult if the purchase or sale is reasonable, even if it means needing to reduce the Chapter 13 plan payment. Many of our Chapter 13 clients have had to buy vehicles or sell houses while in Chapter 13. To accomplish this we need information about the property to be sold or purchased, such as price, what type of property (e.g. make and model of vehicle or legal description of house) and the terms of the sale or purchase (e.g. monthly payment, interest rate, name and address of lender). If there’s an offer to purchase or loan documents, we’ll need copies to provide the trustee. The approval process generally takes 30-45 days so nothing can happen immediately but there are rarely objections to these types of requests. If the purchase of property will require a change in the plan payment we’ll also need to file a motion to modify the Chapter 13 plan.
If something unexpected happens that causes a short term financial emergency like unusually high medical bills, house repairs or a tax bill, we can ask the court to approve a suspension of plan payments while you deal with the short term financial crunch. We still need you to contact us so we can promptly file the appropriate motion with the court.
In Chapter 13 a portion of the debt is paid over a 3 or 5 year plan period. The length of the plan depends on whether household income is below or above the median income for the household size. Below-median debtors only have to repay debts for three years while above-median debtors must repay for five years. A plan can be extended from three years to five if additional time is needed to cure mortgage defaults or repay nondischargeable taxes. Payment plans can’t go beyond five years.
The amount of the monthly plan payment is the balance left over each month after all expenses are paid. In other words, gross monthly income minus all payroll deductions like taxes, medical insurance, retirement accounts and child support results in net monthly income. From that net income all living expenses like costs for food, clothing, transportation, mortgage or rent are deducted. The amount left over is called “disposable income” and that’s the amount paid to the Chapter 13 trustee for disbursement to creditors. There’s no required percentage of debt that must be repaid.
If your income is high enough and your debts low enough to repay all debts, you may have a plan payment that’s less than disposable income, creating a savings. You never need to repay more than the amount of the debt plus trustee’s and attorney fees. If you’re not paying back 100% of your debt with plan payments tax refunds received during the plan period will also have to be turned over. Since unsecured debts are repaid at 0% interest, the ability to make payments to creditors for 3-5 years, with any debt remaining after the plan period discharged, filing Chapter 13 means it’s far more feasible than most debt management plans that require full repayment of the debt, plus interest.
If a change in the financial situation is permanent and sufficient to allow you to qualify for Chapter 7 we can consider converting the case from Chapter 13 to Chapter 7 anytime during the plan period. The conversion would terminate the Chapter 13 plan and discharge the debts just as if you had started out in Chapter 7. It may also be possible to add debts incurred after the Chapter 13 bankruptcy was filed.
Conversion to Chapter 7 may not always be the best strategy though, even if you qualify for Chapter 7. The ability to repay taxes, cram down loans on vehicles and cure mortgage defaults might make staying in Chapter 13 the wiser approach. There will also be additional legal and court fees before a case can be converted to Chapter 7. If you’re struggling to make the plan payment or foresee a change in income or expenses contact us as soon as possible to discuss all the options.
Lots of things can happen while in a Chapter 13 plan. It’s not unusual for Chapter 13 debtors to need to modify their plans several times during the plan period when something happens to cause missed payments. If there’s a job loss we might wait to see if you’ll be employed again soon. We may ask the court to suspend plan payments until you’re employed again. If new employment isn’t obtained quickly we can ask the court to modify the plan to reduce plan payments. If the decrease in income is permanent or continues for an extended period of time we convert the case to Chapter 7.
General Bankruptcy
It’s a myth that people who file bankruptcy lose all or even most of their property. People who file bankruptcy generally never lose property, even in a Chapter 7 bankruptcy, because the property is either exempt or because they pay the trustee for any nonexempt value.
Anyone can file bankruptcy, regardless of income. The question isn’t whether you can file bankruptcy but what type of bankruptcy you can file. If you make less than the median income for your household you should be eligible for a Chapter 7. But even making more than median income doesn’t mean you won’t qualify for a Chapter 7. It only means you have to pass a “means test” that considers how much income is available after expenses. The sample means tests you can find on the Internet often don’t provide accurate answers so don’t be discouraged if you “fail” one of them. It’s also possible to “pass” the means test and still not qualify for a Chapter 7 because of other issues like current income and expenses. That’s why it’s better to just commit to filing bankruptcy and let us advise you on what type best fits your situation. Even filing Chapter 13 bankruptcy is usually better than the alternative of not filing at all.
From the time of filing to the receipt of a discharge in Chapter 7 or confirmation of a Chapter 13 Plan takes about five months. Most of that time nothing is happening except waiting for required time to pass. Most debtors are finished having to do anything within two months of filing. How long it takes to get a bankruptcy filed depends mostly on how quickly you get all the information to us and the fee paid.
It depends on how long ago you filed and what type of bankruptcy you filed. You can file Chapter 7 if you filed an earlier Chapter 7 more than eight years ago. You can receive a discharge in Chapter 13 bankruptcy if you received a Chapter 7 discharge more than four years ago or a Chapter 13 discharge more than two years ago. You can also file Chapter 13 sooner than four years after Chapter 7 if you’re not seeking to discharge debts. For example, sometimes it’s best to file Chapter 7 to discharge what debt you can and then file a Chapter 13 soon after to deal with nondischargeable taxes or a mortgage arrearage. This so-called Chapter 20 allows you to use both types of bankruptcy to deal with debts.
It might if you don’t have much debt, but for most people a Chapter 13 bankruptcy provides more benefit than using a debt settlement program. With a Chapter 13 bankruptcy you can’t be sued by your creditors while you’re making payments and the debt is frozen at the time you file. No interest or late fees can be added to the debt. In addition, unless you’re able to settle with ALL of your creditors, you will have wasted the money you spent on the few who do settle while still having to file bankruptcy. Filing Chapter 13 bankruptcy also provides other advantages over debt settlement like:
- avoiding the tax consequences of debt forgiveness
- possibly “cramming down” loan values and interest rates on secured loans,
- possibly stripping off second mortgages and
- paying tax debts, mortgage defaults and student loans that no debt settlement program can resolve.
In a Chapter 13 bankruptcy, unsecured creditors who fail to file a proof of claim also have their debts discharged without any payment, unless the debt itself is not dischargeable.
No, absolutely not. The relationship between bankruptcy and religion is important because faith in God is a key part of my life and that of my staff. Obviously, people should repay their debts if they can, but it’s clear from the Bible that filing bankruptcy is an acceptable way to deal with burdensome financial problems. In Deuteronomy 15:1-2 God instructed creditors to release from debt anyone who had borrowed money. It didn’t matter whether the lender was legitimately owed the money or whether the borrower had made mistakes. The debt was to be forgiven. Period.
Mandatory debt forgiveness had a two-fold purpose in biblical times. It showed compassion and mercy to the poor, which is required to honor God, and it led to more economic stability for families and the community. Being weighed down by debt isn’t a productive way for any family to live and it prevents people from doing the Lord’s work. Filing bankruptcy to relieve yourself of debt is neither sinful nor against God’s will. This is especially true when the cause of bankruptcy is almost always something beyond your control, like medical problems or loss of a job. In short, bankruptcy is a form of grace and people of faith should embrace bankruptcy as a way of extending grace to people who need it, just as God demanded that grace be shown to debtors throughout scripture.
In general, student loans, alimony and child support, recent tax obligations, criminal restitution and debts arising from a death or personal injury caused by operating a vehicle while intoxicated can’t be discharged. There are exceptions though so if you have these debts we can talk about your options before filing.
For an uncontested personal Chapter 7 bankruptcy we charge a flat fee of $1400. This includes the filing fee. It doesn’t include the required credit counseling courses but those only cost about $30. Bankruptcies involving businesses, farms or very large numbers of creditors may require a larger fee.
While disputes in bankruptcy are rare, if any disputes do occur with a creditor or trustee, we will charge an hourly rate for time spent dealing with the dispute. There may also be additional costs for filing amendments to the bankruptcy, filing for redemption on a vehicle or seeking reimbursement of garnished wages.
For a Chapter 13 bankruptcy we charge an hourly rate. A payment of $1400 is still needed before filing and any additional costs are paid through the Chapter 13 plan.
I’m happy to take payments but all fees must be paid in full before the bankruptcy can be filed.
It’s impossible to say for sure. A bankruptcy can remain on credit reports for ten years (but generally come off sooner in a Chapter 13 bankruptcy). Every creditor has its own policy about loaning to someone with a previous bankruptcy. Your future ability to get credit will depend on the amount of your income, whether you’ve had late payments or other credit problems since the bankruptcy was discharged, and how long it’s been since the bankruptcy was filed.
We ask clients to complete a questionnaire that collects information about property, expenses and creditors. We also ask for paystubs or other income statements, tax returns, credit reports and other information.
Debtors can “exempt” or keep certain property in bankruptcy. In Iowa, each debtor can exempt the property listed below. This isn’t a complete list so other property may be exempt also and you may be able to keep other property by paying its value to the trustee. In most cases debtors lose no property when they file bankruptcy.
- A homestead
- One vehicle with equity of $7000
- Household goods and clothing valued at $7000
- Most pension and retirement plans
- Jewelry valued at $2000
- Public assistance benefits like Social Security, the Earned Income Tax Credit and unemployment benefits
- Farm equipment or tools of the trade valued at $10,000
- Whole life insurance cash value of $10,000
- Any other property valued at up to $1,000
Filing bankruptcy will stop foreclosure proceedings. When you file bankruptcy an “automatic stay” immediately stops debt collection, including foreclosure. You may need to file Chapter 13 bankruptcy to cure a mortgage default and start making mortgage payments again. If you’re facing foreclosure, DON’T WAIT to contact our office.
Debtors in bankruptcy aren’t usually required to appear in court. Debtors are only required to attend a “meeting of creditors,” where the trustee asks questions related to your case, especially about any property owned. It’s very rare for creditors to even show up for this meeting. Hearings before a judge generally only occur when there are disputes with creditors or the trustee and even then debtors are rarely required to attend. Only the debtor’s attorney needs to attend. If you’re required to be at a hearing we’ll be sure to let you know in advance.
It might. Filing bankruptcy is a matter of public record. Some newspapers publish the names of people filing bankruptcy but it’s not something we control. You won’t be alone though and you should remember that getting out of debt is more important than people knowing you took advantage of the opportunity to file bankruptcy.
