Chapter 13 Bankruptcy
This is usually the case to file if you are substantially behind on recent taxes or if the IRS has a tax lien on substantial property. If there is a foreclosure on your home, but you can afford the regular mortgage payment plus something to catch up the back payments, this type of case will often enable you to keep the house so long as you file before any foreclosure sale. If there is a balloon payment on the mortgage coming due soon, (a large lump sum payment due under the original terms of the mortgage), you need to discuss that with the attorney as special provisions usually have to be made regarding that. This bankruptcy may also save you money if you owe much more on your car or truck than it is worth, or if you have a very high interest rate.
If you run your own business, this will usually allow you to keep the business, and keep running it while reorganizing the debts. Often, credit cards and medical bills, as well as other debts that do not have any liens on property, are repaid at 20% of the balance due when the case is filed. Payments continue for 3-5 years.
Corporations cannot file Chapter 13, but unincorporated businesses usually can (depending on the amount of total debt).
BAPCPA Changes: Debtor will usually not be able to reduce the debt on any vehicles purchased within 910 days prior to the bankruptcy, or on other liens on items purchased within one year of the bankruptcy, unless the items are returned to the creditor. Debtors will be required to provide tax returns due within the 4 years prior to filing bankruptcy before the meeting of creditors (approximately 30 days after the case is filed). The case will be dismissed if debtors get behind on alimony or child support payments after the case is filed. If the debtor makes more than the median income for their size family in Florida, the repayment plan will be required to extend five years. The plan may end in 3 years if the debtor makes less than the median income.
The debtor should obtain the same information as described in Chapter 7, which is as follows:
Documents required to be obtained by the debtor and filed with the Court in Chapter 7:
- Copies of payroll stubs or other evidence of monies paid by an employer in the last 60 days.
- Records of any interest of the debtor in an educational IRA or state tuition program.
- A certificate from their consultation with an approved credit counseling agency, and a copy of any repayment plan prepared by such agency.
- A certificate from their consultation with a personal financial management course (within 45 days after the initial meeting in the bankruptcy case).
Additionally, the debtor must provide the trustee with the following documents:
7 days prior to the meeting at the courthouse:
- A copy of the most recent tax return that was filed by the debtor.
At the meeting of creditors:
- A picture identification issued by a governmental unit
- Proof of social security number (must be prepared by 3rd party: social security card, W-2 or 1099 statement, etc. The tax return itself will not qualify).
- A copy of the most recent paystub or document showing most recent amount paid by their employer.
- Statements for each bank account, investment account, money market, mutual fund or brokerage account for the time period including the date the bankruptcy was filed.
- Proof of the monthly expenses shown on the budget (to the extent such expenses can be proven: ie mortgage and car bill statements; utility bills, homeowner or condo fee statements, prescriptions and copies of bills for medicines and doctor visits, etc).
Additional Information on Chapter 13 Bankruptcy
In Chapter 13 bankruptcy you make payments to creditors over three to five years to repay a portion of your debts.
Three of the most common reasons to file Chapter 13 instead of Chapter 7 are that:
1. You have too much ‘stuff’ to file Chapter 7;
2. You have too much income for Chapter 7, or that;
3. You want to change the terms on a car loan or mortgage.
If you are behind on mortgage payments, Chapter 13 can let you catch up the mortgage over time and keep the house, even after a foreclosure is filed.
If the value of the house is less than you owe on the 1st mortgage, you normally can get rid of the 2nd mortgage through Chapter 13 and only have to keep paying the first.
If you owe a high interest rate on a car loan and you want to keep the car, you often can reduce the interest rate to as low as 5 or 5.25% through bankruptcy.
If the car is worth much less than you owe on it, you may be able to reduce the debt to the value of the car through a car valuation in Chapter 13.
Chapter 13 can also usually stop interest and penalties on IRS debt, and save money in paying it through bankruptcy.
Chapter 13 can be complicated to file, as there are many considerations in determining how much you repay to creditors. We often people who filed without an attorney paying much more back to creditors than they would have if they had hired competent counsel at the start.
It is also very important to hire counsel who will remain in contact after the case is filed. One of the keys to keeping a Chapter 13 case alive and successful is the ability to change the payment to the court after the case is filed when unanticipated events occur during the case. We always allow clients to meet with us after the case is filed and after it is approved to see what we can do to keep the plan going, and allow payment for these modifications to be paid through the repayment plan in bankruptcy.