CHAPTER 13 BANKRUPTCY Reorganization
VA Bankruptcy Lawyers
AUTOMATIC STAY
When you file for Chapter 13 bankruptcy, an “automatic stay” goes immediately into effect. The automatic stay stops creditors from doing anything to collect the debts you owe (unless the bankruptcy court allows otherwise). This will stop foreclosures, repossessions and all phone calls, letters, lawsuits, garnishments or any other form of collection.
CHAPTER 13 RELIEF – Stop Foreclosure, Consolidate and Eliminate Debts under the Chapter 13 Plan
Chapter 13 Bankruptcy is a court-enabled reorganization that can be used to stop foreclosure of your home, repossession of your car, or any other form of collection. The Chapter 13 petition would need to be filed before the sale date of your property to be effective. After filing, you will propose a Plan to repay the amount you fell behind on the mortgage and/or car note, along with a certain amount of what you owe on your other debts. You will need to begin paying your regular mortgage and vehicle payments as soon as you file. The filing of the case forces your mortgage company or car creditor to accept payments.
If you are facing foreclosure, lawsuit, repossession or wage garnishment, a Chapter 13 bankruptcy can rearrange your financial affairs allowing you to get back on your financial feet.
The concept is similar to debt consolidation, but it permits you to pay your unsecured debt (credit cards, medical bills, personal loans, etc.) without accruing interest or penalties (student loans are an exception) and without having to deal with those annoying calls from debt collectors. Under a typical Plan, you make monthly payments to a court-appointed Chapter 13 Trustee for three to five years. The amount of your monthly payment is determined by several factors such as the amount of debt you have, your ability to repay and the extent that you have assets. The Chapter 13 Trustee distributes the money to your creditors.
Chapter 13 law is very powerful:
- It stops a house foreclosure, allowing you to make up missed mortgage payments and keep your home.
- It stops repossession, and in most instances allows you to recover a vehicle that has already been repossessed.
- It stops interest and penalties from accruing on personal debt, including back TAXES (an exception to this are student loans).
- Depending on the value of your home, you may be able to strip/remove your second mortgage liens from your home, so long as it appraises for less than what is owed on your first mortgage.
- It protects you from creditors be preventing them calling you and demanding payment or proceeding with lawsuits, judgments, or garnishment of your wages or financial accounts.
- It prevents continued damage to your credit report by stopping negative reporting. Your creditors need to report that your debts have been discharged upon completion of your Chapter 13 Plan.
CREDIT COUNSELING AND MONEY MANAGEMENT CLASSES
Within at least 6 months prior to filing for bankruptcy, you must speak with a credit counselor (or complete the course online). A Maryland foreclosure attorney at our firm will provide you with the necessary information to contact a court-accredited counseling provider. After filing you must also speak to a credit counselor regarding money management (also can be completed online). These courses are taken at your own expense and must be taken before a discharge will be issued.
QUALIFYING FOR CHAPTER 13
Individuals and married couples and certain business can consider chapter 13 as an option. Just as in Chapter 7 the court will look at a two-part test to determine if you qualify to file Chapter 13. However, unlike a Chapter 7, the two-part test will also help to determine the amount you will pay in monthly payments towards your Chapter 13 Plan
A. Actual Budget – To qualify, you must have enough disposable income to repay at least a portion of your debts back over a 36 month to 60 month period. To do so, you will have to show the Court that you have enough income to meet your repayment plan commitment, after taking out your secured debt payments (mortgage and/or car note and your reasonable and necessary expenses. Certain debts will be required to be paid in full, others may be able to be paid at a discounted compromise level. Your income can come from a variety of sources such as wages, self-employment income, liquidation of assets, alimony, child support, retirement or governmental assistance (some exceptions apply to unemployment compensation). The Court does require disclosure of all household income even if your spouse does not jointly file with you.
B. Means Test – The Court will look to the Median State Income for your household size. Next, the Court will compare your gross household income average for the past six months to the median state income. The monthly excess income (known as disposable income) will guide the Court in determining an allowable monthly Plan payment.
DEBT LIMITS
There are limits as to how much debt you can have and qualify to file a Chapter 13.
A. Secured debt cannot exceed $1,081,400 (amount is periodically adjusted). Secured debts are loans and obligation that are secured onto assets such as cars and houses.
B. Unsecured debt (e.g. credit cards, personal loans or medical bills) cannot exceed $360,475 (amount is also periodically adjusted).
CHAPTER 13 PLAN
Our VA bankruptcy lawyers can assist in proposing a successful Chapter 13 Plan so long as you have the following: (1) stable and regular income; (2) disposable income, from which to make monthly Plan payments, as determined from the excess moneys available after paying for your reasonable and necessary living costs;
A Chapter 13 Plan allows you to catch up on your missed house and/or car payments. Because you are making monthly payments, you may be able to include entire car note(s), or small mortgage(s) or loan(s) into the Chapter 13 Plan. You are also able to pay any tax debt, child support or alimony, arrears , unsecured debt (credit cards, personal loans, medical bills, etc.) or any other debt through your Plan.
While in bankruptcy, in addition to the Plan payment, you are responsible for making regular mortgage payments, car loan payments, food, utilities and other reasonable and necessary monthly expenses.
Chapter 13 bankruptcy can be very helpful for people in financial distress, but the legal system is a maze of complex laws, rules, and regulations. Creditors have aggressive legal counsel to fight for them at every stage of the process. If you want to be successful in the process, then you need the best legal counsel to guide you in the process. Let us put the experience, knowledge and expertise of our VA bankruptcy lawyers to work for you.
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