Chapter 13 Bankruptcy is often referred to as a wage earner’s plan. Chapter 13 allows individuals to repay all or part of their debts over a period of 3 to 5 years. But why would one choose to file Chapter 13 Bankruptcy?
You may file Chapter 13 instead of Chapter 7 because you are not eligible for Chapter 7. For instance, you may not satisfy both of budget-based tests of Chapter 7. Or, you may own property which would be liquidated in Chapter 7. For more information about the eligibility requirements of Chapter 7 please refer to my prior blog post about Chapter 7 Bankruptcy.
You also may choose Chapter 13 because relief available in such a case is not available outside bankruptcy or in Chapter 7.
Advantages of Chapter 13
Chapter 13 offers individuals a number of advantages over Chapter 7. Chapter 13 allows individuals an opportunity to save their homes from foreclosure. Individuals can stop foreclosure proceedings and cure their delinquent payments over time. Such relief ordinarily is not available outside of bankruptcy. Chapter 7 would only momentarily delay the foreclosure lawsuit. Also, Chapter 7 does not allow one to cure the mortgage delinquency over a number of years.
Similarly, Chapter 13 stops the repossession of a vehicle. Despite delinquent car payments Chapter 13 enables one to retain the car by paying the car lender over 3 to 5 years. Chapter 7 would only temporarily delay repossession of the car.
In Chapter 13 you may reduce the rate of interest paid to the car lender. The car lender is entitled to the Till rate of interest. The Till rate is the prime rate of interest plus 1 to 3%. Right now, the prime rate is 5.5%. So one could reduce the rate of interest to as little as 6.5%. Ordinarily, one is not able to reduce the interest rate in Chapter 7 Bankruptcy.
You also may reduce car debt in Chapter 13. If the car was purchased more than 910 days prior to filing the bankruptcy case, then you may pay the car lender the current value of the car with interest instead of the loan balance. For example, if the car is worth $10,000 and the loan balance is $15,000, then one could pay the car lender $10,000 with interest over 3 to 5 years instead of the loan balance. Vehicles often depreciate rapidly, therefore, the car is likely worth less than what is owed. Chapter 7 offers similar relief called redemption but one must pay the current value of the car in a lump sum payment rather than over a 3 to 5 year period.
Chapter 13 can be advantageous when dealing with credit card debt, too. Chapter 13 may allow an individual to pay only pennies on the dollar of such debt. You may be able to settle with credit card companies outside of bankruptcy although you are likely to pay much more.
The amount paid to credit card companies in Chapter 13 is largely tied to your budget and what you can afford to pay. What if you can pay credit cards in full – why file Chapter 13?
The credit card companies receive no interest in Chapter 13. This can amount to large savings when the default rate of interest has kicked in. The default rate of interest is ordinarily in the high 20’s.
Also, there is the certainty of being debt free in 5 years. Chapter 13 may not exceed 5 years. So one knows that the credit cards will be paid off in 5 years. Compare how long it would take to pay off your credit cards by making the minimum monthly payments (this information now appears on your monthly statements). In all likelihood, it would take much longer than 5 years.
Lastly, there is there is the ease of payment. You don’t have to deal with your creditors. Instead, that is the job of the Chapter 13 Trustee. You make a monthly payment to the Chapter 13 Trustee and she makes disbursements to your creditors from that payment. You don’t have to worry about paying the various creditors each month. The Chapter 13 Trustee takes care of that for you.
Chapter 13 Eligibility
Like Chapter 7, Chapter 13 has eligibility requirements. First, you must have the income to fund payments to the Trustee. This requirement relates to the feasibility of a repayment plan. The Court will not confirm a Chapter 13 Plan when the payments proposed are not feasible.
Second, your debts cannot exceed the Chapter 13 debt limits. Your noncontingent, liquidated unsecured debts may not exceed $394,725. And your noncontingent liquidated secured debts may not exceed $1,184,200.
Contact the Law Office of Brent M. Myer, PLLC to see if Chapter 13 is right for you.
Law Office of Brent M. Myer, PLLC
27 SE Ocean Blvd
Stuart, FL 34994