Today we will discuss why people file a Chapter 13 bankruptcy.
Chapter 13 Bankruptcy is a "Reorganization" bankruptcy. Reorganization means that you will pay some or part of your debts back. How much you will pay depends on various factors: Income, Assets, etc.
People file a Chapter 13 bankruptcy for one or more of the following reasons:
1. An intense desire for moral or personal reasons to pay back some of the debts.
2. To save or protect an asset or assets [cars, homes, personal property..stocks, bonds, etc.]
3. When one is not qualified to file a Chapter 7 because of high income or because the person has already filed a Chapter 7 earlier and received a discharge in the prior bankruptcy.
4. To deal with IRS tax issues.
Chapter 13 is a procedure for individuals with a regular source of income to reorganize their debt while under the protection of the Bankruptcy Court. Chapter 13 is similar to chapter 11, except, that its procedure is greatly streamlined and the creditors do not get to vote on whether the chapter 13 plan of reorganization is approved.
There are two primary situations where Chapter 13 is used the most. The first is to use Chapter 13 to stop a mortgage foreclosure and to propose a plan to catch mortgage payments over a period of time, i.e over 36 to 60 months. The filing of a chapter 13 case stops any foreclosure action and gives you an opportunity to catch the mortgage payments up-to-date over a 3-5 year plan. As part of the plan, your credit cards and other unsecured debt are put on hold and these creditors are paid a very small percentage (10 to 20%) over the life of the Plan, depending on your disposable income or the value of your non-exempt assets, also known as the “liquidation test, ” at the end of which time, these debts are completely forgiven.
Debts debts incurred through fraud cannot be discharged in a Chapter 13 Bankruptcy. However, the creditor has the burden of proving that you have committed fraud.
A Chapter 13 bankruptcy must be filed before your house is actually sold at a foreclosure sale. Once your house is sold at the Courthouse steps, it is usually too late to file a bankruptcy to save that property. You can still file a bankruptcy to get rid of the deficiency on that property.
The other major use of Chapter 13 is by individuals who do not have mortgage problems, but who are behind with their credit cards, loans, medical bills, and other unsecured debt, but for some reason cannot file a Chapter 7 (the usual reason is that these Debtors have previously filed and received a Chapter 7 in the last 8 years). In such cases, a chapter 13 plan is proposed with monthly payments over 3 to 5 years sufficient to pay in a typical case around 10 to 20 cents on the dollar. If a person has a lot of ”non-exempt” assets, the monthly plan payment will be a little higher, but still affordable to most people.
The payments under a chapter 13 plan are made on a monthly basis to the chapter 13 trustee, who then distributes the funds to all the creditors. The Bankruptcy Court requires that the monthly plan payments come directly from your wages. Therefore, a Wage Deduction Order is signed by the Bankruptcy Judge which instructs your employer to send money from your wages directly to the Chapter 13 Trustee. In some cases the Wage Deduction Order can be waived. This happens if you are working in the financial industry or you have a good faith belief that your job may be jeopardized if the employer finds out that you have filed a bankruptcy or employees working strictly on commissions and piece meal or as temps.
What will be my Plan Payment to my unsecured creditors [credit cards, medical bills, etc.]
How much you will pay to your unsecured creditors depends on various factor:
1. You have to make a good faith payment to your unsecured creditors. you cannot pay them $0.00.
2 . Income. You have to pay at 90% of your disposable income to your creditors. Gross Income minus Reasonable and Necessary Expenses equals Disposable Income.
3. Liquidation Test: If the Trustee were to take your non-exempt assets, and liquidate them for cash, how much money will be able to be distributed to the unsecured creditors. You have to pay at least that amount to your unsecured creditors through the Chapter 13 Plan.
4. A new formula is the CMI disposable income formula. We will discuss this later in another blog.
Whatever yields the most and the highest distribution to your creditors..is what you will pay through the plan. So if item # 2 yields $6,000, however, item # 3 will yield $10,000, then you will pay $10,000 through the Chapter 13 Plan to your unsecured creditors.
Attorney Elias Leonard Dsouza concentrates his practice on Bankruptcy [Chapter 7, 13 & 11,] Foreclosure Defense, Defense of Credit Card Lawsuits, Credit Restoration, and Debt Settlement & Credit Counseling. Our office also handles complex Civil Litigation, Business & Corporate Transactions & Litigation, Employment Law, Collections, Creditor representation, Real estate transactions, Personal Injury, Family Law, Immigration, Landlord-Tenant law, Franchise Law, Tax Law and We Sue Debt Collectors under the Fair Debt Collection Practices.
If you have questions on this Program, please call me at 954-358-5911.
MY MISSION:
I am very passionate about helping consumers protect their rights, and my goal is to compassionately and passionately help people reorganize their debts, help them keep all or most of their property, save their homes from Foreclosure, stop wage garnishments, and assist people to “get a fresh financial start”. I am available to assist and advise you on how to rebuild your credit and buy the new house or start the new business that you always wanted to. This is a small law firm, and as such, can and does provide personal service, professional representation, and follow up. If you would like to learn
more about your options, contact me as soon as possible for a FREE INITIAL CONSULTATION so
that I can assist you through these difficult times. I also offer an affordable payment plan for legal fees.
Elias Leonard Dsouza, Esq.
"The best compliment you could ever give me is a referral."
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