Chapter 13 Bankruptcy

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When considering whether to file bankruptcy, many people believe that in order to retain their home, they must file Chapter 13. In fact, bankruptcy cases are highly situation dependent – Chapter 13 bankruptcy is not always the best option.

On this page, you will find more information about bankruptcy law and gain a better understanding of Chapter 13. If you are ready to talk to a knowledgeable attorney for a consultation regarding your bankruptcy case, contact ANANIN CHERMOL KHATTAR FISHMAN PLLC today.

Chapter 13 Bankruptcy Lawyer

Background

Unfortunately, many different life events within and without our control can lead to developing large amounts of debt. Aside from education, job loss, accidents, and illnesses can all cause debt to reach a level that becomes completely unrealistic to pay back, even over years or decades. Many individuals choose to file for bankruptcy in such cases.

In the world of bankruptcy law, Chapter 13 is also called a wage earner’s plan. It is a payment plan that enables individuals with a regular income to keep their assets while sustainably paying back a portion of their debts. With this method, individuals can make affordable payments with a reduced interest rate each month toward their debt resolution.

In this case, “debts” are divided into two types: secured debt and unsecured debt. With secured debt, the borrower places an asset, or collateral, in the hands of the lender for the lender’s assurance. This type of debt includes mortgages and car loans. Unsecured debt has no collateral backing and includes debt such as credit cards and personal loans. This distinction becomes important in the world of bankruptcy law and for Chapter 13 eligibility.

Chapter 7 vs Chapter 13: Which Should I File?

Under chapter 7, the Bankruptcy Code may allow a person with debt to retain certain assets, including their home, if the bankruptcy exemptions cover the equity of the home. Under the Bankruptcy Code, an exemption is property that is immune to liquidation under Chapter 7. In other words, it is property that does not become part of the bankruptcy estate. The bankruptcy estate consists of all the debtor’s non-exempt assets. In a Chapter 7 case, it is liquidated to pay off the unsecured creditors. Under the federal bankruptcy exemptions, an individual can exempt, or exclude, up to $20,200 of home equity. A couple filing a joint bankruptcy can exempt up to $40,400 of home equity. Thus, if a couple filing for Chapter 7 Bankruptcy owns a home worth exactly $240,400, and has paid off $40,400, the Bankruptcy Court may be able to exempt up to $40,400 of the home’s equity. Since the lender is still owed $200,000 and has a secured interest in the property, the Bankruptcy trustee will not go after the property in a Chapter 7 liquidation. However, if a couple owns a house worth $300,000 and has paid off $70,000 of the mortgage, the bankruptcy trustee will liquidate the property, because the joint filers’ combined exemptions would only cover $40,400 worth of equity, leaving an additional $29,600 worth of equity that the trustee could liquide and distribute to the debtors’ unsecured creditors.

As such, it is not always obvious whether a debtor should file for Chapter 13 bankruptcy over Chapter 7. As a rule of thumb, the more assets that a debtor has and wishes to retain, the more beneficial it may be to file Chapter 13 over Chapter 7. Of course, there are no hard and fast rules when it comes to bankruptcy. Therefore, it is always beneficial to consult with an experienced PA bankruptcy attorney before filing any kind of bankruptcy case. A PA bankruptcy attorney can obtain the necessary documents from you, conduct a thorough analysis of your financial situation, and determine which chapter you should file based on your best interest and eligibility.

In some cases, it may be more beneficial to file 13 over Chapter 7. Chapter 13 is preferable when a debtor retains a large amount of non-dischargeable debt. Non-dischargeable debt is debt that cannot be eliminated. Some examples of non-dischargeable debt include domestic support obligations, certain tax debt, and student loans (in most cases).

 The Stages of Chapter 13 Bankruptcy

Generally speaking, a Chapter 13 Bankruptcy case is far more complicated than a Chapter 7 one. In fact, more than 97% of all Chapter 13 cases filed without an attorney (“pro se”) are dismissed by the court. Therefore, it is crucial that you retain an experienced PA bankruptcy attorney that can help you navigate this byzantine process.

Following the confirmation of a Chapter 13 Bankruptcy, plans typically run for either three or five years. In some cases, a debtor may finish their plan sooner. However, due to COVID-19, a debtor who is facing hardship as a result of the pandemic may extend their plan up to seven years.

Prior to the confirmation of a debtor’s Chapter 13 Bankruptcy plan, additional time will be needed to file the Chapter 13 bankruptcy petition and to seek approval from the court for the debtor’s proposed plan. Depending on the complexity of the case, additional time may be needed prior to filing the bankruptcy petition and during the process of obtaining approval.

 Initial Consultation

After retaining an attorney, an initial consultation will be held during which the attorney will ask you a number of questions to get a complete picture of your financial situation. Additionally, you will be asked to provide a number of financial documents. During this stage, the retained attorney will develop a strategy in order to minimize the risk of your dismissal and ensure that the Bankruptcy Court provides a discharge.The sooner the attorney has all the prerequisite financial documents, the sooner the bankruptcy petition can be filed. Therefore, it is a good idea to bring all or most of your documents to this consultation.

  • The Bankruptcy Filing and the Automatic Stay
  • Proposed Repayment Plan
  • Section 341 Meeting of Creditors
  • Financial Education and Repayment Plan

Am I Eligible For Chapter 13?

An individual may be eligible for Chapter 13 whether they work for a business or are self-employed. The most notable requirement for Chapter 13 is that secured and unsecured debts cannot exceed certain amounts.

Those ineligible to file for Chapter 13 Bankruptcy include:

  • Businesses, except for sole proprietorships or partnerships
  • Individuals with a lack of a steady income
  • Those who are behind on tax filings
  • People with secured debts over $1,184,200 and/or unsecured debts over $394,725
  • Those who have not received credit counseling from an approved creditor in the past 180 days (six months)*

*Exceptions and extensions exist in emergency situations, including COVID-19

An individual also cannot file for Chapter 13 if a prior bankruptcy petition was already dismissed within 180 days due to failure to show up in court or failure to follow all rules and regulations.

Of course, in addition to the requirements mentioned above, individuals filing for Chapter 13 must submit a long list of requirements, not limited to but including an extensive financial record and a $300 fee. Failure to submit any items on time could lead to dismissal of the bankruptcy case.

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