Chapter 13 Bankruptcy
Chapter 13 is a Section of the Bankruptcy Code which enables qualified individuals and small business owners to retain their assets and consolidate all or a portion of their debt under a Chapter 13 Plan payable over three to five years. The Debtors and their attorneys formulate the repayment play
The Debtor must make a single monthly plan payment to the bankruptcy trustee throughout the duration of the plan, and the bankruptcy trustee distributes the plan payment among all of the Debtor’s Creditors in amounts and priorities specified in the plan. (Certain obligations including long-term secured liabilities such as home mortgages, may or must be paid outside of the plan.)
AMOUNT OF PLAN PAYMENT – The amount of the plan payment is an amount equal to all of the surplus income of the Debtor and the Debtor’s spouse. Surplus income is all income received by the Debtor and his or her spouse that is not reasonably necessary for the support of the Debtor and the Debtor’s dependents.
If your current budget shows you can afford to pay more than that amount, the Trustee in your case will seek to have your payment amount increased (if you are paying less than 100% of your unsecured debts through the plan). Assessing the amount you will pay in a Ch. 13 is very tricky and is one of the reasons you need the assistance of an experienced bankruptcy attorney. We calculate this for individuals at the time of their initial consultation in most cases.
An important bankruptcy requirement it that you must pay out at least as much in the Chapter 13 Plan as your creditors would have gotten if you filed a Chapter 7 case. Therefore, if you have a lot of non-exempt assets, you would need to account for this in your plan.
BENEFITS OF FILING CHAPTER 13 IN UTAH
Many interesting and valuable options are available to Debtors in Chapter 13 cases that are not optional in Chapter 7 cases.
STOP A FORECLOSURE SALE AND CATCH UP ON YOUR HOME MORTGAGE – For example, if you are behind on your home mortgage, arrears can be cured within the Chapter 13 Plan over a period of 3-5 years.
PROTECTION FROM CREDITORS – Chapter 13 protects individuals from the collection efforts of creditors; permits individuals to keep their real estate and personal property, and provides individuals the opportunity to repay their debts through reduced plan payments.
CATCH UP ON PAST DUE CAR PAYMENTS – Car loans are frequently paid through Chapter 13 Plans including past due amounts. You may be able to prevent and/or reverse repossession. In addition, interest rates are almost always dramatically lowered.
MODIFY YOUR HOME MORTGAGE WHILE IN CHAPTER 13 – Individuals often attempt to negotiate a mortgage modification with a lender while in Chapter 13.
CESSATION OF INTEREST AND PENALTIES ON TAX DEBT IN CHAPTER 13 – Certain tax repayments can be made easier by virtue of elimination of interest payments. This can be a tremendous benefit that your attorney can assist you in accomplishing.
ELIMINATE SECOND MORTGAGES AND OTHER LIENS UNDER CERTAIN CIRCUMSTANCES – You may be able to get rid of junior liens on your real property including second mortgages (known as a “lien strip”). If the fair market value of your property is less than the total amount owed on the first mortgage, then you can eliminate the security interest to any junior lienholders and treat them as general unsecured creditors in your plan (thereby being able to possibly pay them less than 100%).
REDUCE THE AMOUNT TO BE PAID ON A CAR LOAN OR OTHER PERSONAL ASSETS THROUGH CHAPTER 13 – In some instances secured claims need only be fully paid to the extent of the value of the property securing the claim. This treatment is often applied to vehicles proposed to be paid through a Chapter 13 plan. If a vehicle was purchased over 2.5 years prior to the date of filing, Debtors are permitted to “cram down” the debt against the vehicle and required to pay the value of the vehicle and not the amount owed on the vehicle. For example, if Debtors own a vehicle with a fair market value of $5,000.00 on which they owe $10,000.00, if the vehicle was purchased over 2.5 years prior to the date of filing, Debtors are only required to pay $5,000.000 through the Plan to pay for the vehicle.
DISCHARGE UNSECURED DEBT such as credit cards, medical bills, payday loans, certain taxes and other debt through consolidation in a Chapter 13 Plan and repayment of 0% to 100% of the debt owed. If you have non-exempt assets and earn sufficient income, you would be required to pay a higher percentage.
LOWER INTEREST ON MOST DEBTS CONSOLIDATED IN CHAPTER 13. Often, interest is lowered to Zero Percent.
DEFER INTEREST ON STUDENT LOANS – While you are in Chapter 13, you’re not permitted to make payments on student loans unless you are paying 100% to unsecured creditors. In addition, st6udent loan creditors may not collect from you.
While most of the Chapter 13 bankruptcy information on this page is relevant to any Chapter 13 case across the country, some of it is geared specifically to rules and regulations of the bankruptcy courts in the State of Utah.
Our office is based in Sandy, but we handle Chapter 7 and 13 cases throughout the State of Utah.
There are some court and trustee’s fees that get added on, but let an attorney evaluate your budget to see what you can accomplish in a Chapter 13 and compare that to your other options.
CHAPTER 13 VS. CHAPTER 7
One purpose of a chapter 13, as opposed to a chapter 7, is to enable a debtor to retain certain assets (for example, your home or other real estate) that might otherwise be liquidated by a chapter 7 Trustee.
It also provides an alternative to Chapter 7 when you have too much disposable income (your net monthly income exceeds your net monthly expenses by too much) and usually yields much lower monthly payments than you were previously paying and (here’s the real benefit), after 36-60 months, you are done! Your debts are gone.
It also enables you sometimes to discharge debts that would not be discharged in the Chapter 7, such as parking tickets, non-criminal fines, and debts incurred through willful and malicious injury to another.
The goal of most personal bankruptcy is to discharge your existing debts by repaying all or a portion of your debts and allow you a FRESH START on your finances. In other words, once your discharge is granted, you no longer need to repay the debts that were incurred before you filed your bankruptcy.
Assuming you need to file a bankruptcy, the only way to determine which Chapter to file under is to first compare your options under the other available Chapters and be sure you have consulted with an experienced bankruptcy attorney to properly analyze your options.
WHO MAY FILE CHAPTER 13 BANKRUPTCY?
Only an individual with regular income who owes, on the date you file the petition, less than $383,175 in unsecured debt and $1,149,525 in secured debts. (For cases filed after April 1, 2016 the limits are $394,725 for unsecured debt and $1,184,200 in secured debt.)
The debts used to calculate these limits must also be non-contingent and liquidated, meaning that they must be for a certain, fixed amount (or easily determinable amount) and not subject to any conditions or bona fide disputes. If they are legitimately disputed or not liquidated, then those amounts may be excluded from the debt limit calculations.
If you are ineligible to file Chapter 7, your only option will be Chapter 13 which is a very good and successful option for many individuals. If your income exceeds the median in the six month period prior to filing bankruptcy, your attorney will evaluate your income and run the means test to evaluate your eligibility.
HOW DOES CHAPTER 13 WORK AND HOW LONG DOES IT LAST?
Individuals with “regular income” are eligible for Chapter 13. This means you must have some source of income that is regular or at least can be averaged regularly on an annual basis, for example. Individuals often file if they have prospects for earning income in the very near future. Any such prospective income source must materialize prior to confirmation.
Chapter 13 Plans must run no less than 36 months and no longer than 60 months. If your disposable income exceeds the medium, Utah law requires that the plan must run the full 60 months. Your disposable income is defined as: income received by you from all sources including income of your non-filing spouse, in the 6 calendar months prior to filing minus expenses that are reasonably necessary for the maintenance and support of you or your dependents.
In evaluating the “reasonableness” of an expense, reference is made to fixed amounts (guidelines) generated by the Internal Revenue Service based on geographic location. They aren’t necessarily what your actual expenses are.
THE CHAPTER 13 REPAYMENT PLAN
At the end of 36 (or 60) months, you are discharged from all dischargeable unsecured debts, regardless of how much your creditors have received. In most bankruptcy courts, including those in the State of Utah, $150-$200 is likely the minimum payment one can make in a Chapter 13 case.
In addition to your plan payments, you must stay current with any ongoing obligations you have to secure creditors, such as your home mortgage and any other secured debt you elect to pay to a creditor directly rather than through the Chapter 13 Plan.
Approval of ANY Chapter 13 Plan of repayment requires a determination by the court that the case is filed and the plan proposed in Good Faith, generally that you are not seeking to hinder, delay or defraud any of your Creditors.
MISSING PLAN PAYMENTS – If you are unable to make your plan payments for some reason, we can seek court permission to authorize you to miss the delinquent plan payments.
INCUR DEBT WITH COURT PERMISSION – You cannot borrow money (incur new debt) exceeding approximately $500.00 during the pendency of your case (usually 3 years), without first obtaining court approval. This can be somewhat of a problem if, for example, your car lease expires and you need to get a new car during this period.
WHICH DEBTS CAN BE DISCHARGED IN CHAPTER 13?
First of all, any debt that you CAN discharge in Chapter 7, will also be dischargeable in the Chapter 13.
NO INFORMATION OR MATERIAL CONTAINED HEREIN IS INTENDED TO CONSTITUTE LEGAL ADVICE, AND IS NOT APPLICABLE TO ANY SPECIFIC SET OF FACTS, ESPECIALLY AS TO ANY INDIVIDUAL’S PERSONAL SITUATION. NEITHER THE INFORMATION CONTAINED HEREIN NOR THE PERUSAL OF IT ESTABLISHES OR CONSTITUTES AN ATTORNEY-CLIENT RELATIONSHIP WITH UTAH BANKRUPTCY PROFESSIONALS OR ANY OF ITS ATTORNEYS OR ASSOCIATES.
For more information on Chapter 13 Bankruptcy In Utah, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (801) 432-8682 today.