Chapter 13 bankruptcy differs from chapter 7 bankruptcy in two ways.
First, a chapter 13 bankruptcy involves repayment of a portion of the debt to creditors. Second, chapter 13 is a plan of monthly payments that takes between 3 and 5 years to complete.
The decision to file a chapter 13 is driven by a number of factors. For most individuals they simply do not qualify under the means test for a chapter 7. The means test is a mechanical test which accounts for income, location of residence and number of individuals in the residence.
Generally if you are above the median income based on where you live and the number of persons (regardless of relationship) living in your house you will file a chapter 13.
In other cases a chapter 13 is advisable where certain debts need to be brought current or caught up on. where individuals have house or car payments they wish to catch up on, a chapter 13 can allow those payments to be brought current.
Also when taxes are due and owing, a chapter 13 can allow the tax debt to be paid.
Usually the next question that occurs to individuals contemplating repayment is how much will I pay. The plan is driven by a reasonableness standard.
I have had clients pay as low as $50.00 per month and as high as $5,000.00 per month. I have also had clients pay as little as 1% back to creditors and as high as 100%.
The above example shows the great difference in how much my clients have earned and what is reasonable to pay back. Most of my clients pay less than $500 per month. Also, in a chapter 13 plan you can’t be forced to pay more than 100% of the filed claims.
In many cases creditors do not file claims and therefore the total amount owed is less than what they were trying to collect. Regardless of what was owed at the completion of the plan your debts are discharged. This means either you complete the plan through time or you complete the plan through full payment.
In both cases you are debt free at the end of the plan.
If you are being called, collected on, served with legal documents, and garnished or if you simply are stressed by the amount of debt you have, than you should meet with a bankruptcy attorney.
Nearly all reputable bankruptcy attorneys offer a free consultation. At the very worst you will walk out with information on what can and what can’t be done to help your situation.
Bolinske Law always offers a free no pressure consultation with an attorney.
Not everyone who walks into Bolinske Law needs a bankruptcy, other options may exist depending on circumstances.
If Bankruptcy is the best option, the decision is then made which chapter is best suited to achieve the results the client is looking for. In the case of a chapter 13, the process begins with the client completing intake documents and paying the upfront fee.
Fees for chapter 13 bankruptcy range from $500.00 to $1,500.00. Once the documents and the fee has been paid, an attorney will draft the bankruptcy petition and the plan.
The plan will take the total amount of income and subtract taxes insurance, retirement (401k or pensions), living expenses including food, clothing and shelter. The plan will also subtract for car expenses and utilities, children’s costs, medical as well as many others.
The difference between what you earn minus your reasonable expenses will be what is paid on a monthly basis.
In the years Bolinske Law has been doing chapter 13 bankruptcy plans we have never had a planwhere clients find the payment terms worse that what they are dealing with prior to filing.
In a chapter 13 plan, creditors are prohibited from calling, writing, suing, garnishing or harassing. Creditors are also not allowed to charge interest during the term of the plan.
Take control of your financial future and schedule a time to meet with one of our attorneys.