CHAPTER 13
Chapter 13 bankruptcy is a “reorganization” (as opposed to Chapter 7 “liquidation”). A reorganization gives you more options when dealing with your creditors. All Chapter 13 filers must propose a plan that sets out the treatment for all creditors. While the plan must meet certain requirements, many details are flexible. Innovation and creativity are often rewarded.
Among other things, a Chapter 13 plan can help you:
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Keep all your property.
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Catch up missed payments on your house or car by repaying those amounts over a period of up to 5 years.
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“Cram down” or reduce the amount you owe to some creditors to the value of the collateral.
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Reduce the interest rate that you are paying on motor vehicles and other secured debts.
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Recover a vehicle that was recently repossessed, or wages recently garnished. If you have a situation like this one, you should seek advice immediately, as the issue can be very time sensitive.
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Surrender, or give back property that you do not want to keep or cannot afford.
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Catch up on any lease payments you have missed, or reject the lease and limit or eliminate your obligations under the lease.
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Pay back tax liability over a period of up to 5 years.
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Catch up on missed alimony or child support payments.
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Avoid judgment liens against your property and certain types of liens on household goods.
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Manage your ongoing monthly mortgage payments by having those amounts included with the Chapter 13 bankruptcy payment (called a “conduit mortgage payment”).
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Discharge certain types of debts that cannot be discharged in a Chapter 7 case.
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Pay your bankruptcy attorney as part of your monthly plan payment so that you do not need to pay this amount before you file.
How Much Per Month?
Chapter 13 works by allowing you to use your monthly earnings to make plan payments to the Trustee. The amount of the plan payment will depend on many factors, including:
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Your income
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The property you want to pay for in the plan
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Other claims you must pay (such as tax or child-support claims)
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Whether you have equity in property that must be paid to creditors
How would income and equity impact your payment? If you have high income, the Bankruptcy Code requires all “disposable income” (determined by a very complex formula) to your unsecured creditors. If you have equity in your home or other property that you cannot claim exempt, you must pay the amount of that equity to unsecured creditors from the payments you make in the plan. (In a Chapter 7 case the Trustee would sell this property and pay the equity to your creditors, but you can avoid this result in Chapter 13 by “buying back the equity” from the Trustee over time.)
Just like Chapter 7, the “automatic stay” applies the moment you file your bankruptcy case, and protects you from creditors during the case. It will stop foreclosure, repossessions, garnishments and law suits. And just like Chapter 7, when your case is completed you will receive a discharge of most of your debts, meaning that you will be free from any attempt to collect those debts in the future.
The automatic stay in Chapter 13 goes a little further and will also protect cosigners on debt with you, if it is a consumer debt.
CONDUIT MORTGAGE PLANS
Are you a homeowner facing foreclosure, or are you involved in a dispute with your mortgage lender on the amounts that you owe? There are situations where dealing with the lender will feel like an impossible task. The companies that service loans are sometimes working with information that is…let’s put this kindly…less than clear, and not always accurate or complete. The result for homeowners can be baffling or even literally Kafka-esque!
Your Chapter 13 plan can include special provisions that will guarantee a clear payment record for the life of your case. “Conduit mortgage” is a special type of Chapter 13 plan where you make your mortgage payment to the Chapter 13 Trustee, instead of directly to the mortgage lender. When you complete your conduit mortgage case you will receive a Court document stating that you are current in all of your mortgage payments.
You can combine this with other claims you want to pay in the plan, so you will only have to make one single payment that will cover everything.
In a “conduit” plan the Chapter 13 Trustee will handle the mortgage payments, make sure the monthly payment amount is correct, and will assist in providing an accounting of all payments made during your Chapter 13 case.
Conduit mortgage plans come with a higher payment, but it may sometimes be a useful solution in helping you resolve long-standing issues with your mortgage lender.
If you’re concerned about the added expense that comes with conduit mortgage payments (the added expense is about 10% of the monthly house payment you’re making now), consider the late charges and fees you might be already be incurring, or the attorney fees you would need to pay to the mortgage company if you get behind during the Chapter 13 case and the creditor files a “motion for relief from stay” with the Court based on delinquency in payments.
CONDUIT MORTGAGE PLANS
Are you a homeowner facing foreclosure, or are you involved in a dispute with your mortgage lender on the amounts that you owe? There are situations where dealing with the lender will feel like an impossible task. The companies that service loans are sometimes working with information that is…let’s put this kindly…less than clear, and not always accurate or complete. The result for homeowners can be baffling or downright Kafka-esque!
Your Chapter 13 plan can include special provisions that will guarantee a clear payment record for the life of your case. “Conduit mortgage” is a special type of Chapter 13 plan where you make your mortgage payment to the Chapter 13 Trustee, instead of directly to the mortgage lender. When you complete your conduit mortgage case you will receive a Court document stating that you are current in all of your mortgage payments.
You can combine this with other claims you want to pay in the plan, so you will only have to make one single payment that will cover everything.
In a “conduit” plan the Chapter 13 Trustee will handle the mortgage payments, make sure the monthly payment amount is correct, and will assist in providing an accounting of all payments made during your Chapter 13 case.
Conduit mortgage plans come with a higher payment, but it may sometimes be a useful solution in helping you resolve long-standing issues with your mortgage lender.
If you’re concerned about the added expense that comes with conduit mortgage payments (the added expense is about 10% of the monthly house payment you’re making now), consider the late charges and fees you might be already be incurring, or the attorney fees you would need to pay to the mortgage company if you get behind during the Chapter 13 case and the creditor files a “motion for relief from stay” with the Court based on delinquency in payments.
DISADVANTAGES OF CHAPTER 13
Although Chapter 13 has many benefits, it has certain drawbacks and limitations.
First, you must have a regular source of income to qualify for Chapter 13. If you do not have regular income you will not be able to make the Chapter 13 payments.
Other people may not qualify for Chapter 13 if they have too much debt. As of April 2019 the limits are $419,275.00 per person in “unsecured debt” and $1,257,850.00 in “secured” debt (but like most things in the law, these limits are subject to exceptions and conditions).
Finally, there’s no other way to say it: Making the Chapter 13 payments can be tough sometimes. You’ll be expected to make your payments to the Chapter 13 Trustee every month for up to 5 years while meeting your other living expenses, through good times and bad. Unexpected setbacks such as reduced hours at work, hurricanes, family obligations, holidays, and unexpected medical or home ownership expenses can wreak havoc on your Chapter 13 reorganization. If you don’t complete the plan you won’t get the full benefit.
Let’s end on a bright note: Remember Chapter 13 is very flexible, and a skilled attorney can often assist you in modifying your plan so that you can get your case back on track. The people who work in the Chapter 13 Trustee’s office and the Bankruptcy Court understand that this process can be difficult. They often allow second chances when you have experienced a setback if they see that you are giving your best effort. The system is intended to help you, and although it has its flaws you will find that the people who work in this area of the law are compassionate and helpful.
Some Advantages & Disadvantages of Chapter 13
Positives:
Keep all your property.
Catch up on missed house, car or lease payments.
Repay tax liability over time.
Avoid certain judgment liens and liens on personal property.
Pay your attorney fees as part of your monthly plan payment.
Protect cosigners on consumer loans.
Negatives:
Plans usually take 3 to 5 years to complete.
Must have regular income.
You may not qualify if you have too much debt.
Must contribute all extra or “disposable” income to your plan.
You can learn more about the Chapter 13 process here.
In my 10 years in the Chapter 13 Trustee’s office I analyzed thousands of plans to make sure they would satisfy the requirements of the Bankruptcy Code and had the best possible chance to be successful. If you need Chapter 13 relief, I would be pleased to put my expertise to work for you!