Chapter 13 is a different kind of bankruptcy. When most people think about bankruptcy they have a chapter 7 in mind. A chapter 13 bankruptcyis the consumer version of the type of bankruptcy that has been in the news so much that corporations file. A chapter 7 is a “liquidation,” while chapter 13 bankruptcy is a “reorganization.”
A debtor in a chapter 13 bankruptcy can be an individual, a married couple, or even a small business. In this kind of case you will be paying at least some portion of your debts from your on-going income. Unless you propose to pay your unsecured bills in full through the reorganization plan, payments must continue between three and five years. There are a number of reasons why you might consider a this over a chapter 7 bankruptcy:
- You have assets that are free and clear and you don’t want a chapter 7 trustee to sell them to pay creditors
- You have too much income to file a chapter 7 bankruptcy
- You have fallen behind on secured bills like your mortgages and car loans
- You want to stop or prevent a foreclosure
- You owe child or spousal support, or other divorce obligations. They cannot be discharged in chapter 7, but they can be paid and some discharged through a chapter 13 bankruptcy.
- You feel a compelling need to pay at least a portion of your bills spread over time.
- You have had a chapter 7 discharge within the past 4 years, and need bankruptcy protection again.
- You have tax problems and need the court to supervise a payment plan to keep the IRS from taking your income and assets.
You will pay your disposable income to the chapter 13 trustee by way of wage order, bank account deduction, or direct payment. Payments need to be made at least monthly. They need to start within 30 days of case filing. In Cleveland the trustee will also be paying your current payments on all secured debts. This is called a “conduit” payment. You will be responsible for leases and your living expenses. The court prefers payment to be made by wage deduction or pay order. Your plan payments will initially seem quite high, but you have to keep in mind that they include:
- Past due amounts on secured debts
- Current payments on secured debts
- Payments on priority debts such as certain taxes, support arrearages, and other money owed to government
- Payment on your unsecured debt. This can be from 0% to 100% depending on your finances.
- Administrative expenses such as trustee fees and any balance due on your attorney fees.
A chapter 13 bankruptcy can be a great deal of work. It is often very complicated. For these reasons many attorneys who advertise they are bankruptcy lawyers will not handle these. It is very important in your choice of an attorney you be sure he does both kinds of cases. If an inexperienced attorney does a chapter 7 for you when a chapter 13 may have been better, you can be at risk of losing valuable assets needlessly.
Since these cases are so much work, they do cost more than a chapter 7. The great news for you is that the Bankruptcy Court in Cleveland places strict controls on the fees chapter 13 attorneys may charge. There is a fee cap, a portion of the fee can be paid in advance, but the largest portion of it must be paid as part of the plan during the first 12 months. If your attorney deviates from the Court’s standard order, the fee must be approved by the Judge.
If you think a chapter 13 bankruptcy is your best bet, you are in the right place.