Are you always trying to catch up with your debts and always falling behind? Was your income interrupted by a layoff or a medical emergency? Are you stuck with debts from a time when you were making more money than you are now? Are you facing foreclosure, repossession, or other financial stresses?
We are here to help you get back on your feet with a Chapter 13 bankruptcy. Chapter 13 reorganization may be a viable option if you are currently unable to make necessary payments but feel like you could pay with more time.
Our experienced bankruptcy lawyers will look into your individual financial circumstances to determine whether Chapter 13 bankruptcy is a good option for you.
What is Chapter 13 Bankruptcy?
Under the Chapter 13 bankruptcy reorganization process, you can modify your existing debt payments by reorganizing eligible debt into a new three to five year repayment plan.
Chapter 13 bankruptcy consolidates debt by using a “means test” to gauge how adequately your expected income will be able to cover the severity of your debt. Your bankruptcy lawyer can then devise a payment plan that will afford you flexibility.
What are the Advantages of Chapter 13 Reorganization?
Chapter 13 bankruptcy may be a viable option if you are currently unable to pay off your debt, but feel like you could pay with more time.
Chapter 13 bankruptcy is unique because:
- Income is used to pay some or all money owed to creditors over a predetermined length of time
- Plan for repayment are firm and detailed
- Debts are streamlined into one combined, regularly-scheduled payment
- Payments usually run three to five years
- A person filing for bankruptcy is allowed to keep his or her property
- Agreement is approved by a court
- Bankruptcy under Chapter 13 also applies to tax debt owed to the IRS
By making an affordable monthly payment, Chapter 13 bankruptcy can help you gain the following benefits:
- Protect your equity in your car or home
- Stop the foreclosure process
- Reduce what you owe on some car loans
- Reduce or eliminate, in some cases, what you owe on second or third mortgages
- Pay back an IRS debt without penalties
- Dismiss divorce-related property debt (property settlements) to your ex-husband or wife
What are the Disadvantages of Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is not right for everyone. You need to have a steady source of income that can be used to calculate what sort of monthly payment would be reasonable for you.
The goal is to ensure that you are able to pay your living expenses as well as your bankruptcy payment every month.
For debts that are eligible for discharge in Chapter 7 bankruptcy, such as credit card debts and medical bills, you will typically end up paying only a small percentage in Chapter 13. The rest will be discharged if you successfully complete the payment plan.
Let Us Help
Our experienced bankruptcy lawyers can help you determine whether Chapter 13 is a good plan for you. We are not just here to sign off on the paperwork. Instead, we’ll give you honest, experienced advice on this important decision.
Contact us to speak to one of our experienced bankruptcy lawyers or to arrange a free initial consultation. If you cannot come to our Omaha offices, we can consult with you by telephone.
Determining Chapter 13 Bankruptcy Payments
Each state is different when it comes to determining payments, but a good bankruptcy attorney in Omaha can give you a really quick and accurate answer. Here is a quick breakdown of the math and other requirements that are involved.
You must pay in enough each month to fund the purchase of your vehicles, arrears on your house (if any), furniture and household items (like payments to Nebraska Furniture Mart), secured tax liens and the like.
Under 11 U.S.C. 507 of the bankruptcy code, certain creditors get “priority” in a bankruptcy and must be paid in full within 60 months. Although not a complete list, these creditors typically tend to be for income taxes (those incurred in the last 3 years are the norm), child support and alimony (pas due amounts only).
Chapter 7 comparison test
Bankruptcy Attorneys in Omaha and nationwide are commonly referring to the “Best Interests of Creditors” test. In a nutshell, this means that you must pay back your creditors in a Chapter 13 at least as much as they would have received in a Chapter 7 bankruptcy. As an example, if creditors would have received $5,000 if you would have filed a Chapter 7 case, then they must get that amount or more in a Chapter 13 bankruptcy in order for the Plan to be approved. Naturally, this may mean, in certain cases, that they payment must be more than a minimal amount.
There are many optional provisions in Chapter 13 plans. A typical example is for there to be special consideration given to consumer debts that have a co-signer. A Chapter 13 debtor may not want the co-signer to be stuck with the debt and may want to pay such a debt in full through the Plan. This is possible, but not necessarily required, in a Chapter 13 bankruptcy. Obviously, when these provisions are made, the payment must go up to cover the cost of the additional expense.
Attorney fees and Chapter 13 Trustee fees
The cost of filing bankruptcy in Omaha, Nebraska can, and normally is, paid through the Chapter 13 Plan. In other words, you normally only have to pay a small amount down to get your bankruptcy filed. Most cases are filed for $500 or less. The remaining attorney fee is paid over the next several years as part of your monthly bankruptcy payments. (As a side note, attorney fees are strictly regulated for bankruptcy lawyers in Omaha and Nebraska at large and will be the subject of a future blog). Finally, the Chapter 13 Trustee for the District of Nebraska receives anywhere between 5% and 10% to operate her office. These “administrative fees” are automatically calculated into your Chapter 13 payment and are deducted each month. However, on the bright side, NO INTEREST is charged on unsecured debts in the normal case, which really is a huge advantage compared to debt consolidation.
Overall, Chapter 13 bankruptcy relief is an excellent choice if you need to file bankruptcy. As mentioned, each case is unique and payment plans vary substantially. Monthly payments start at $125 per month in general and go up from there depending on the factors outlined above.
Chapter 13 Bankruptcy FAQs
Chapter 13 isn’t the best option for everyone, however, it is a great option for people who want to protect their car or home and who have steady income that can be used to pay debt over a period of time.
In the simplest terms, Chapter 7 removes debt (not all debt) and lets you start fresh, where Chapter 13 reorganizes your debt and gives you time to catch up on missed or late payments. Both Chapter 7 and 13 have their benefits and drawbacks.
As your bankruptcy lawyer, it is my job to discuss both options with you and figure out which route (if any) would be best for your specific situation.
Yes, a chapter 13 bankruptcy can stop a foreclosure sale of your house in most instances. You can learn more about this process in my blog post Filing a Chapter 13 Bankruptcy Will Stop a Foreclosure Sale.
In Chapter 13 bankruptcy, you get to keep your car and pay off your car loan through a repayment plan. And if you owe more than the car is worth, you might be able to reduce the amount owed.
To be eligible to file for Chapter 13 bankruptcy, you must meet the following criteria:
- Live, work, or own property in the United States
- Have a regular source of income
- Have unsecured debts of less than $465,275
- Have secured debts of less than $1,395,875
- Have a profession other than a stockbroker or a commodity broker
- Not dismissed another bankruptcy case within the last 180 days (but there are exceptions)
- Have received bankruptcy-specific credit counseling with the last 180 days
You can be denied if you have attempted to defraud the courts, you’ve concealed information, you’ve lied to the courts, you refuse to comply with court orders, or you fail to take the required personal finance courses.
This is NOT true in most cases. Yes, if you make a lot of money and are able to pay back your debts in full, then you normally will be required to do so over 60 months. But, the average Chapter 13 bankruptcy in Omaha calls for a repayment plan that pays only a fraction of what is actually owed. Some cases actually provide for a ZERO percent payback to the unsecured creditors. It all comes down to what is fair, reasonable and feasible. Sometimes people need the power of a Chapter 13 bankruptcy to stop something really bad from happening, such as a house foreclosure, wage garnishment or tax levy. Every case is different and each one needs to be considered on its own merits.
A chapter 13 plan will generally last 36-60 months or 3-5 years. This may vary based on the amount of debt to be paid through the plan and the income of the debtor.
Chapter 13 is designed to pay debt over a set period of time. In most cases, that won’t decrease if you have more disposable income than you expected. However, the court will allow you to pay off your bankruptcy plan early if you pay creditors 100% of their claimed amounts (some unsecured creditors don’t file claims and you don’t normally have to pay those debts). If you are able to pay all of your outstanding debt, specifically, those creditors that actually filed claims, then you could pay off your plan early.
Yes, in most, but not all, cases. Your bankruptcy attorney can guide you through your specific situation.
You are not required to have a bankruptcy attorney, however, know there are risks associated with going it alone. Bankruptcy law is very confusing and court employees cannot provide guidance or offer legal advice. This is why your bankruptcy lawyer is important. An attorney can educate you on the process, help you determine which type of bankruptcy is best for your unique situation, answer questions about the law or process, help you complete the necessary forms and paperwork, and explain any tax implications (normally a better outcome) that result from the Chapter 13 proceedings versus debt forgiveness outside of bankruptcy.
In most cases, a bankruptcy attorney will help:
- Examine your unique financial situation and determine whether a Chapter 13 is best for you
- Help you obtain the required pre-bankruptcy credit counseling
- Help you prepare a reasonable budget
- Help you communicate with creditors
- Create a Chapter 13 plan
- Prepare and file all the necessary forms and paperwork
- Attend meetings and the court hearing
- Get the Chapter 13 plan approved
- Handle the claims filed in the case and filing objections to improper claims
- Obtain a discharge when ready