What is Chapter 13 bankruptcy?
A Chapter 13 is basically a reorganization of your debts. What this means is that your debts are discharged but your property is not normally liquidated. You usually get to hang onto your house. You most always get to keep your cars. You may even get to keep a boat or a rental property as long as the math comes out right and you can pay a reasonable portion of your debt back. One of the best features of a 13 is the ability to adjust the interest rate if you have a high-interest vehicle loan. If you purchased the vehicle more than 910 days (about 2.5 years) before filing bankruptcy, it can often be “refinanced” through a 13 to lower the payment. If there are back taxes to be paid, the interest and penalties usually stop – allowing you to pay them off faster. A frequent type of Chapter 13 client has been out of work for a while but has now become employed again. They can start to get their finances back in order. The Chapter 13 buys them time, and again, it’s a shield. It’s a big wall of protection between the debtor and the creditors.
As long as your creditors get paid something, you can catch up on back payments, and keep making your current payment on things like houses and cars. You pay back part of your debt over three to five years, depending on your income. At the end of that time, the balance of your debts – the part that you didn’t pay back – is gone and you’ve kept your property. So that’s a 13 is in a very brief summary.
Why would I choose bankruptcy?
The purpose of bankruptcy is protection. The bankruptcy laws are going to keep the creditors at bay. That means you can’t be sued. That also means that if you have been sued, your wages can’t be garnished. Your property can’t be repossessed by a creditor without the court’s permission. Your bank account can’t be grabbed. Bankruptcy is basically a shield between you and your creditors. Some people want to try and work things out on their own and they can be fairly successful with that if they don’t have a lot of debt and have some cash available.
But that’s part of the problem. In order to settle a debt on your own, you’re going to have to have cash because creditors, in return for discounting your debt, are going to want a cashier’s check in their hand. They will rarely take payments. If they do, they will normally want the debt paid in a very short time – like 3-6 months. The reality is that most people who come in for a bankruptcy consultation don’t have enough cash to settle their debts. If they did, they probably wouldn’t be in our office.
What experience do you have with Chapter 13 bankruptcy cases?
Chapter 13s are less common than 7s and are quite complex. But they can really help people reorganize their financial life and get out of a bind. Both Erin and I have been crafting Chapter 13 plans since we started doing bankruptcies. So that’s several hundred at this point. As a percentage, roughly a third of all bankruptcies that we’ve done are 13s.
Can you give an example of someone you helped with Chapter 13?
There was a couple a few years back that got a lot of help from filing a 13. They were both employed and doing well financially. Then the wife got sick shortly after starting a new job. Her insurance had not started yet. After a surgery and all the other connected expenses, the bills mounted up. She was also off work for 2 months. They still managed to hang on but about 2 weeks after she returned to work, the husband got in a car accident. Although he had insurance, the other driver did not. His car was totaled. His injuries were serious and he was off work for almost a year. The uninsured portion of his medical expenses was significant. They were buried in debt, behind on their mortgage, and barely keeping the lights on.
As is the usual case with hardworking, responsible people, they never thought that they would be sitting in a bankruptcy attorney’s office. But sometimes life just drops stuff in our lap and we have to dig our way out the best way we can. That’s where our office comes in. A plan was crafted for them that allowed them to make up the back payments on their house, get a new car, and get their life back on track without being behind the financial 8-ball. The last time we spoke to them (a few months after they received their discharge), the husband was back at work, the wife had recovered her health and received a promotion, and they were building their retirement funds back up.
How can our firm help?
We can help you in various ways. When you initially come in, the first thing we do is listen. What happened? What do you need to feel OK again? How can we help you?
Once we understand the situation, we give you information and options. Information is power. We will discuss the pros and cons of each option, and what we think might work best for you. You are in control and have the final say because this isn’t about us. This is about you. What strategies are going to best fit in with your overall life goals and how you want your life to look?
When you’ve made an informed decision regarding how to proceed, we work as a team. We get you through the process and answer your questions. We make sure that you have what you need to get everything done correctly. A major goal of ours is to make sure that you feel comfortable and safe working with us, and you are no longer afraid that the light at the end of the tunnel might be an oncoming train!
Please contact us for assistance with your Chapter 13 bankruptcy matter (360) 334-6277.