Most people, including attorneys, do not fully grasp the power of a Chapter 13 bankruptcy. It is quite amazing how so many problems can be handled with such bankruptcy. Nothing else even comes close; not a Chapter 7 bankruptcy nor a Chapter 11 proceeding.
The reason a Chapter 13 bankruptcy is so powerful lies in its ability to be modified over a period of 3 to 5 years and with special laws and rules that are unique only to these types of cases. In other words, as your personal financial circumstances change, so too may your Chapter 13 bankruptcy plan.
Even today, after practicing as an Omaha Bankruptcy Attorney for more than 23 years, I am still struck by how significant and useful a Chapter 13 can be for a large number of people. Let’s look at a few examples of this power and flexibility.
Chapter 13 Plan Payments Adjust With Your Income and Expenses
This is true. If you start out with the requirement and/or goal of paying back, for example, 50% of your debt because that is what you can afford at the time you file bankruptcy, that doesn’t mean that you are stuck with that payment, necessarily, if your income goes down.
In many cases, you just need to update the Court as to your change in income and then your payment can be decreased by filing an Amended Chapter 13 Plan. Of course, if your income goes up and you have the ability to pay more, then you must do that as well.
In short, the idea is to do what is fair and reasonable, both for yourself and for your creditors.
Chapter 13 Cases Can be Converted to Chapter 7 at a Later Date
This is a great feature of a Chapter 13 bankruptcy. If, for example, you start out with a Chapter 13 bankruptcy with the ability and goal of paying back a certain percentage of your debt (anywhere from .0001% to 100% is possible) and something along the way changes your ability to continue with the Plan, then you can simply convert your case to a Chapter 7.
There are, of course, significant details to consider before converting a case to Chapter 7 (and there are some circumstances when it doesn’t make sense or is impossible to convert). However, in a large number of cases, the option to convert to a Chapter 7 bankruptcy in the future offers significant mental and financial relief for many people.
And, if you do convert to a Chapter 7 at a later date, you can add new creditors for debts that were incurred during the time that you were in a Chapter 13 bankruptcy. For instance, if you unexpectedly incur medical bills while in a Chapter 13 bankruptcy, a subsequent conversion of your case to a Chapter 7 wipes out those medical debts! Very powerful stuff if you think about it.
Chapter 13 Plans are More Affordable to Get Filed
In most instances, Chapter 13 bankruptcy attorneys will accept $500 or less to get a case actually filed with the Bankruptcy Court!
Occasionally, but not commonly, a case will be filed for as little as $100 down depending on the circumstances, such as when a bank account garnishment is in progress. Although Chapter 13 attorney fees are actually more than Chapter 7 fees, the truth is that almost all of those fees are paid through the Chapter 13 Plan! This means that you simply make a monthly bankruptcy payment to the Chapter 13 Trustee each month (normally through an employer withholding) and then the Trustee pays your attorney fees after the Court approves your case.
Therefore, your attorney does not get paid until your case is approved and those fees are built-in to your repayment plan.
The above three examples are just a sampling of the powers available only in a Chapter 13 bankruptcy. There are hundreds of different variations on specific powers and options that are available to Chapter 13 debtors. Chapter 13 law is a really big tool box!
Each Chapter 13 Plan handled by John T. Turco & Associates is customized for each individual case to obtain the very best results possible. A free consultation is available.