Chapter 13 Bankruptcy
Chapter 13 Bankruptcy is a payment plan and is commonly used to stay mortgage foreclosure or lower overall monthly expenses. A Chapter 13 Plan is filed with the court and later confirmed allowing the Petitioner to repay mortgage arrears or only cents on the dollar of their unsecured debts (credit cards, medical bills, personal loans, collection accounts, and certain tax obligation, among others). A Petitioner usually qualifies for Chapter 13 Bankruptcy protection based on equity in real estate (house) or based on higher income qualifications, as discussed below.
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Chapter 13 Bankruptcy in Philadelphia Case – Scenario 1
Many people believe incorrectly that filing for Chapter 13 bankruptcy is their only option if they own a home. In fact, homeowners have several options when declaring bankruptcy.
Individual homeowners are entitled to an exemption of $20,200. To clarify, if two homeowners own property and have a mortgage of $100,000, the property must be worth over $140,400 for them to file under Chapter 13. Otherwise, a Chapter 7 bankruptcy case may be a more viable option. The bankruptcy attorneys at Sadek & Cooper Law Offices conduct free online appraisals to conclude whether or not Chapter 13 is the best option for you.
Chapter 13 Bankruptcy in Philadelphia Case – Scenario 2
Income can also be a major factor in determining whether or not a Petitioner can file for Chapter 13 bankruptcy. Chapter 13 payment plans can be structured around what a Petitioner can afford to pay their creditors monthly rather than what he/she owes.
The Chapter 13 standards, called “means testing,” are similar to the IRS collection standards and often provide Petitioners with significant monthly savings on their debts. Because of these savings, Petitioners can enjoy a higher level of disposable income. Chapter 13 Bankruptcy also leads to a higher credit score due to an improved debt to income ratio, leaving you and your family with better credit terms.
The Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted on March 27, 2020. The Act is set to expire on March 27, 2021, however, while it is active, the Act provides a great benefit to Chapter 13 Filers who had an active case prior to March 27, 2020. Chapter 13 Bankruptcies traditionally last for a period of three (3) to five (5) years; however under CARES, a Chapter 13 Bankruptcy filer who is facing further financial distress due to the pandemic may extend their payment plan for up to seven (7) years under the CARES Act. Such an extension can lower ongoing Chapter 13 payments and may provide increased disposable income to Chapter 13 filers by reducing their monthly financial obligations.
The Chapter 13 bankruptcy attorneys at Sadek & Cooper Law Offices are here to help
Chapter 13 Bankruptcy may be appear confusing, however, the bankruptcy attorneys at Sadek & Cooper Law Offices specialize in Bankruptcy Law, with free consultations and reviews of your financial situation to determine a Chapter 13 Bankruptcy Law strategy for you.If you have any questions regarding Chapter 13 Bankruptcy and your legal situation, call the bankruptcy attorneys and lawyers at Sadek & Cooper Law Offices at (215)-545-0008. We offer a FREE and confidential consultation with one of our Chapter 13 bankruptcy attorney in our law offices to further discuss Chapter 13 Bankruptcy.
What is the Process in a Chapter 13 Bankruptcy Case?
As you might imagine, a Chapter 13 case is far more complex than a Chapter 7 case. It’s the type of case no borrower gets through without a lawyer.
There are, for example, a lot more places, reasons, and ways for creditors to make objections when you file a Chapter 13 case. There is a lot more paperwork and there are a lot more steps.
Here’s what to expect.
Step 1 – Initial Consultation
After meeting with and retaining your attorney, it will be time to sit down and gather all your financial documents. During this consultation we’ll be working to make sure we don’t miss anything about your financial situation.
Once we’ve made sure everything is in order, and that there are no problems which could threaten your ability to get a discharge, it’s time to file.
Step 2 – Filing & Automatic Stay
The automatic stay goes into effect as soon as you file your case, though it might take your creditors a little while to get their notice. Once you have a case number, though, you can simply report the case number, along with the name and number of your attorney, to any creditor who calls or tries to take action against you.
They’ll each receive formal letters notifying them of the stay, but keep your case number handy.
Step 3 – Proposed Repayment Plan
You will have to make payments on your plan before there is a formal 341 hearing thanks to the way federal deadlines are structured. Just keep in mind the payment your attorney proposes, and the first one you make, may not be the payment the trustee ultimately accepts.
Step 4 – 341 Meeting
The 341 Meeting of Creditors gives representatives from all of your creditor companies the chance to ask you questions while you’re under oath. Often, they don’t even attend, but you shouldn’t count on that.
The trustee will be able to ask you questions as well. He or she will mostly be trying to determine if the schedule is true, complete, and correct.
Assuming you’ve included everything and are making no attempt to defraud the court, this entire process should go off without a hitch.
Step 5 – Plan Approval
At this point the trustee and the creditors must approve or object to your payment plan.
This is the first point in the case where you will really need an attorney’s help. This is the part of the case where people start filing objections and motions, where points of law and procedural issues enter the debate.
Step 6 – Financial Education
You’ll need to complete the financial education course that’s required by law. You cannot get your discharge until you’ve completed this course, and have filed the resulting certificate with the court.
Typically you can take the class online. Your attorney can point you in the right direction.
Step 7 – Plan Payments
This is the longest part of the bankruptcy. For the next three to five years you’ll make payments to the trustee. The trustee will then distribute the money, starting with debts that can’t be discharged, moving on to secured debts, and then finishing off with unsecured, lower-priority debts.
During this time you’ll be required to report any changes in circumstances to your trustee. This could include sudden increases or decreases in income, unemployment, sudden windfalls of money, or anything that changes your financial circumstances.
You may request a modification of your plan during this step, but only if your situation has changed enough to warrant it.
For example, you can’t get a modification if, after 9 months of paying into the plan, you decide you just can’t afford the payments. The plan is based on a budget based on the information you provided, and if that information is correct then the plan should be affordable.
But if you lose your job and your income plummets by 50% then a modification makes perfect sense.
Step 8 – Completed Plan
When you’ve made the final payment the trustee will send you a Notice of Completed Plan Payments. The court will review all the facts of the case, and will make sure there aren’t any facts that might disqualify you from receiving your discharge.
In most cases, the court will issue a Notice of Intent to Enter Discharge. All interested parties will have 14 days to object if they have any objections.
Usually, though not always, any objections have long been met and dealt with by now.
Step 9 – Follow-up
Your attorneys will usually have to nudge creditors to take certain necessary actions at this point. For example, if you were behind on your mortgage when you went into your Chapter 13 plan then your attorney might have to make sure the mortgage company provides you with written acknowledgement that your plan is now current.
All of these actions will pertain to secured debts. Unsecured debts have already been 100% dealt with.
Step 10 – Final Decree
Once all the lingering issues of the case have been cleared up the court will issue a final decree, closing the case. You get to breathe a sigh of relief, knowing you’ve achieved your fresh start.
Most of the people who file Chapter 13 bankruptcy are trying to save a home they already have. But in some cases, people who are working their way through a Chapter 13 plan start considering a home purchase.
And if you’re one of them, take heart: it is 100% possible to get a mortgage while you work your way through your plan. You just have to find a bankruptcy-friendly lender and meet their requirements. This won’t be easy, but other borrowers have made it happen, and if you’re careful and strategic, you can too.
There are some general requirements almost all these lenders have.
1) Work your plan for at least one year.
Make all payments on time. The lender will be looking for signs that your fresh start is helping to put you on firmer financial footing.
Lenders want you to be successful with your new mortgage. Keeping up with your plan payments is a good sign you can be.
2) Save up a down payment.
Lenders will consider you to be the highest of high-risk borrowers. This means zero-down government-backed loans won’t be open to you.
Plan on saving at least 20% down. You should also be aware that the source of the funds matters. Many mortgage lenders won’t accept down payments that come from friend and family member gifts, for example.
3) Put together a robust emergency fund.
If you’ve been a renter all your life you might not realize just how expensive home ownership can become. Even if you’re extremely handy, there are things you’re just not going to be able to fix on your own, or cheaply.
Your utility bills are likely to increase. In addition, you’ll have property taxes to deal with.
With a good attorney by your side, you should be able to work a modest emergency fund savings plan into your bankruptcy budget. But keep in mind the court won’t let you keep much.
Still, if you can show your lender you’ve got a cushion then they’re typically going to be more comfortable working with you.
4) Get permission from your trustee.
When you’re working a Chapter 13 bankruptcy your financial decisions aren’t entirely your own to make. You’ll have to make your case to your trustee, who will approve or deny your decision.
You’ll need to demonstrate that taking out this mortgage won’t cause you to default on your payment plan, since the trustee’s primary concern is ensuring that the creditors don’t suffer harm or loss as a result of this decision.
5) Double check your decision.
For some borrowers, it’s truly better to wait. Some may even want to convert to a Chapter 7, clear the remaining debt (if they meet the requirements of the federal means test) and then save up while rebuilding credit over the next two years.
It’s not easy to meet the requirements while working a plan. But much depends on your situation, your local housing market, and what you’re trying to accomplish. In some areas of the country, homeownership is significantly cheaper than renting, for example.
If you’re not sure what to do, consult your bankruptcy attorney. We can help you strategize and gain trustee approval if you decide to move forward.
Can I Buy a Car During Chapter 13?
It’s almost impossible to live and work without a car. And unlike houses, cars tend to break down at the worst possible moment. They wear out and they become more expensive to fix than to replace.
If this happens during Chapter 13 bankruptcy, will you be able to get a new one?
As it happens, the answer is yes. But it’s a multi-step process.
Try to put together a down payment.
While it isn’t easy on a Chapter 13 budget, having a down payment ready can help. Bankruptcy-friendly car loan companies can be a god-send, but they aren’t being reasonable out of kindness.
They’re out to make money, and they can make a lot of money by charging a subprime borrower higher interest rates. Having a down payment can either reduce those interest rates a little, or reduce your monthly payment and the terms of your loan.
You won’t have much of a line item for “savings” on your Chapter 13-approved budget, so you might have to get creative. For example, if you have an $1000 grocery budget you can use coupons, bulk buying, and cheaper recipes to try to bring it down to $700 a month. The trustee won’t suddenly demand that you use the extra $300 to pay more on your debt, which means you will be welcome to set it aside.
You’ll need the approval of your trustee.
Your request won’t be particularly surprising. You won’t be the first person who has ever asked, and you won’t be the last.
But you’ll still be taking on new debt, and the trustee has to approve that. He or she will want to make sure your existing creditors won’t be harmed by your decision, i.e., that you will be able to keep making your plan payments. Obviously, you’ll have to keep up with your plan payments even before you go shopping for a car. If you’re consistently late or struggling then it’s unlikely the trustee will say yes.
The trustee might also place limits on how high your car payment can be, which can put some limitations on the type of car you can buy. But the limits will be realistic: the trustee also recognizes it’s hard to make your payments if you can’t get to work.
Gather Evidence for the Motion
You won’t be able to deal in vague numbers when you approach the trustee. You’ll need to have the dealership write up a financing deal without pulling the trigger on it.
It should list the make, model, and year of the car, and it should include all the loan details. This will all be included when you have your attorney file your “Motion to Incur Debt in Chapter 13.”
Once you have a court order, you can go back to the dealership and finish the process.
Keep in mind the car won’t be protected by the automatic stay. You’ll need to make every payment on time. If there are viable alternatives like public transportation, car pooling, or even putting together the cash to buy a very cheap car on Craigslist, then you should consider those before incurring another debt.
Work with Our Dedicated and Experienced Bankruptcy Lawyers
The bankruptcy lawyers of Sadek & Cooper are dedicated to providing bankruptcy and non-bankruptcy solutions for people looking to handle their debt problems. We are proud to help hard-working people in Pennsylvania and New Jersey get out of debt and on the path to a fresh financial start. To schedule a free and confidential consultation, call us at 215-545-0008 or contact us online.
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