Not everyone will qualify for a Chapter 7 case. Almost everyone will qualify for a Chapter 13, unless their combined debts are simply too high. You may be a candidate for a Chapter 13 filing if: (1) you make too much money or have too many assets to qualify for Chapter 7; (2) you are behind on your house or car payment and are seeking to avoid foreclosure or repossession; (3) your car is worth less than the amount you owe on it and you want to decrease the payment; or (4) you have no equity in your home and want to “strip off” your second mortgage.
The primary difference in Chapter 7 and Chapter 13 is that in a Chapter 13 case you will be making a payment to the Trustee every month, generally for either 3 years or 5 years, depending on your income. Your Chapter 13 plan payment will depend on how much “disposable income” you have, according to the Means Test. In a Chapter 13 case, you must repay in full all priority claims (child support & alimony, arrearages on assets you will retain, and non-stale tax debts) and secured debt for any asset you retain (unless a “cram down” or lien strip is available). You repay only a portion of your unsecured debts, depending on your income.
Once your plan is filed, you will not pay most creditors directly. With the exception of mortgages on your home, most other debts (including your car loan) will be paid by the Trustee from you plan payment. Once your plan is confirmed, as long as you make your plan payment, creditors (with the exception of mortgage holders) have no right to sue you, call you to collect money, or garnish your wages for pre-petition debts. At Coleman, Chambers, Rogers & Williams, LLP, we can examine your income and expenses and tell you what your approximate plan payment would be in a Chapter 13 filing.
If you are behind on your mortgage (or car payment), the amount you are delinquent is called your arrearage. One unique protection offer by Chapter 13 that is not afforded under Chapter 7 is that, once you file your petition, a creditor cannot repossess or foreclose on you for a pre-petition default, regardless of the amount of your arrearage. Your arrearage is calculated into the plan and repaid by the trustee. You resume making your regular payments after the petition is filed, and your creditor is only allowed to repossess or foreclose on you based on a post-petition default of your payments.
Another advantage of a Chapter 13 Bankruptcy that is not permitted in a Chapter 7 filing is a “Cram Down”. This is where the secured debt for an automobile is reduced to the fair market value of the automobile (established by Blue Book values). This is possible where the value of the automobile is worth less than the amount owed to the creditor, and where the loan was entered into more than 910 days prior to the filing of the case. If you qualify for a cram down, the secured amount of the debt becomes the fair market value of the car, and the difference between the payoff pursuant to the loan agreement and the secured amount is deemed unsecured debt and is treated as other unsecured debt pursuant to your Chapter 13 Plan. In addition to changing the loan amount, you may also be able to unilaterally change the interest rate and maturity date of a car loan.
For more information on Chapter 13 filings, click here for the advantage and disadvantages of filing for Chapter 13.
Please call Coleman, Chambers, Rogers & Williams, LLP to talk to an experienced bankruptcy attorney today to determine if a Chapter 13 filing would benefit you. We offer a low down payment to assist our Chapter 13 clients.
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