Chapter 13

Who are Candidates for Filing Chapter 13?

Anyone on this list are people trying to save their house. As long as bankruptcy is filed prior to sale, then you have up to 60 months to "Catch up" your house. Second Mortgages can be "stripped off" (Avoided) by obtaining a Court Order from Bankruptcy Judge. However, the income must be "Regular." The Bankruptcy gives individuals seeking relief, "debtors" a lot of time for their income to stabilize. Depending on your financial circumstances, a homeowner can pursue Modification or Mediation while in Bankruptcy. In theory, a house loan can be "adjusted" when gross income is 31% of "New Adjusted Payment" (Making Home Affordable Guidelines). Small business owners and/or professionals are often candidates for Chapter 13 Reorganization. In particular, a business owner can keep their business and file bankruptcy if they pay "liquidation value" (Value of Business) to unsecured creditors. For example, if value of business is over $20,000 and an individual has $100,000 or over of unsecured debt, a Chapter 13 debtor can file and possibly pay only $20,000 to unsecured creditors (liquidation value). The Trustee will also consider "Disposable Income"-how much money is remaining to pay creditors on monthly basis. The Current Law also also examines CMI (Current Monthly Income)-the gross income earned in prior 6 months before filing-commitment period. Finally, taxes and car arrears can be paid through a Chapter 13. In fact, when a vehicle has been current for 910 days, a person filing bankruptcy can pay Fair Market Value as opposed to loan balance through the bankruptcy plan.

One Advantage of Chapter 13 is Flexibility.

Chapter 13 is "voluntary chapter" of bankruptcy. The significance is that as quickly as a person files, he/she has right to dismiss out of bankruptcy. Chapter 13 Bankruptcies can be modified if income changes. Moreover, a Chapter 13 case can be converted if circumstances change to Chapter 7 Bankruptcy.

Timing is Everything.

Chapter 13 Bankruptcy works well when there is "regular income." In particular, it allows us to plan how much and when debts are paid. How do you plan when income is from commissions or tips? It is not a perfect science. However, an important fact is to be honest about probable trend in the future. For instance, if you are a realtor with a lot of transactions in the pipeline, the prospect is solid for income in the future. Conversely, if you are earning little or no income-be honest about what has to change for there to be enough income to pay required payments.

Chapter 7

When is Chapter 7 a valid option?

If your financial problems are NOT temporary, then filing a Chapter 7 is a legal alternative to discharge (wipe-out) debt. Conversely, if your problems are due to temporary setbacks (illness, unemployment)-Don't file bankruptcy. Unfortunately, many people on the coast are experiencing ongoing financial problems.

What does filing a Chapter 7 accomplish?

Chapter 7 is typically a 90-day process. 30 days after case is filed, there is a required court hearing-Meeting of Creditors. Typically, 60 days after Meeting of Creditors, the bankruptcy is discharged.

Chapter 7 Bankruptcy wipes out all unsecured debt, including credit cards, deficiency balances (money owed on surrendered house & cars) and other personal loans.

How fast can bankruptcy be filed?

If there is an urgent need, a bankruptcy can be filed immediately, as the process utilizes electronic filing. For instance, lawsuits, garnishments and other collection activities are all stayed (stopped) when bankruptcy is filed.

What is credit counseling?

Credit counseling is a pre-requisite to filing bankruptcy. However, in most instances, the required counseling can be completed via phone or internet immediately if necessary.

Who qualifies for Chapter 7 Bankruptcy?

There is a lot of misinformation about this issue. Many people still qualify for Chapter 7 under present law-BAPCPA (Bankruptcy Bill of October 2005). The bankruptcy changes created a scale or index to evaluate a household income versus average-CMI (Current Monthly Income). For instance, if you are a family of four that grosses less than $5,904/month, there is a presumption that you qualify for Chapter 7.

However, even if you are over the set thresholds, a person can still file a Chapter 7 if the net income can be "netted out" with "real life" expenses. The CMI (Current Monthly Income) utilizes inputted numbers to calculate a person's disposable income.

There is an Important Exception to CMI Test.

If over half of a person’s debt is for "business debt" then the CMI does not apply. In particular, if a person has a lot of debt from "investment properties" or regular business debt, then the CMI may not apply. The only income and expenses to be evaluated are the "real numbers." If there is a lot of debt, there is often a basis to file a Chapter 7 Bankruptcy.