Chapter 13 is a different kind of Bankruptcy. When most people think about bankruptcy they have a chapter 7 in mind. A chapter 13 case is 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 this chapter is a “reorganization.”
A debtor (that’s you) in a chapter 13 case can be an individual, or a married couple. 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 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 through a chapter 13.
- 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 8 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 as soon as the case is filed. 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. 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, 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 case is a great deal of work. It can be 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 and can be very complicated, 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.
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