If you are experiencing financial hardship, Chapter 13 bankruptcy may provide some much-needed relief. Chapter 13 is when a borrower consolidates their existing debts into one monthly payment. Unlike Chapter 7 bankruptcy, borrowers will not be required to sell their assets as a condition of the bankruptcy. Instead, Chapter 13 is considered a restructuring bankruptcy because the borrower continues to make payments according to a court-approved payment plan.
With Chapter 13 bankruptcy, you can lower payments, prevent foreclosure, eliminate debt, and stop car repossession. Chapter 13 is designed to help borrowers keep their assets and eliminate debt for a fresh start. There are many advantages to Chapter 13, but there may be some disadvantages as well. Therefore, you should consult with a Tampa bankruptcy law firm before filing.
Stop Foreclosures, Garnishments, and Lawsuits
When a borrower files for bankruptcy, an automatic stay is issued. The stay goes into effect immediately after a Chapter 13 bankruptcy is filed. The automatic stay will put an immediate end to all collection activities. Therefore, all foreclosures, garnishments, lawsuits, and phone calls will stop. The automatic stay will even cancel a foreclosure sale that has already been scheduled.
Mortgage Modification with Chapter 13 Bankruptcy
Chapter 13 allows homeowners to force the bank to accept a 5-year payment plan for the past due amount. The homeowner won’t have to pay the full mortgage in 5 years, only the amount that is past due. You don’t need to apply for a loan modification, and you can force the bank into the 5-year payment plan.
Additionally, you can apply for a traditional loan modification as part of the Chapter 13 case. These modification applications are usually much different than when a homeowner applies. In Chapter 13 mortgage modifications, the U.S. Trustee will oversee the application. Additionally, there can be a mediator appointed as well to help streamline the process. With much more oversight, the bank is less likely to cause unnecessary delays and wrongfully deny legitimate requests.
Requirements to File Chapter 13 Bankruptcy
Only individuals who are domiciled in the United States may qualify for Chapter 13. Therefore, businesses and corporations are not eligible. Further, there are income requirements to file Chapter 13 bankruptcy as well. To qualify for Chapter 13, you must receive a regular source of income. The borrower needs to prove they have a regular and stable income, which is sufficient to pay the proposed payment plan.
In a jointly filed case, both spouses are eligible even if only one of the debtors receive regular income. A bankruptcy court will focus primarily on the existence and stability of the regular income, rather than the source of the income. See In re Baird. For instance, regular income derived from social security, alimony, pensions, and retirement plans may all be eligible sources. See In re Hanlin
Debt Limits for Chapter 13
There are debt requirements to file Chapter 13 bankruptcy in Florida. Unsecured debts must be less than $394,725, and secured debts must be less than $1,184,200. Secured debts are loans that have collateral, such as car loans and mortgages. On the other hand, unsecured debts have no collateral. Examples of unsecured debts are medical bills and credit cards. The amount of debt allowed changes frequently.
Credit Counseling Requirements to File Chapter 13
Borrowers must also attend two credit counseling courses as requirements for Chapter 13. The first course must be completed within the 180 days immediately preceding the bankruptcy filing. The briefing can be done on an individual basis or conducted in a group setting. Moreover, the briefing can take place by telephone, internet, in person, or even in your attorney’s office with your bankruptcy lawyer present. Once the course is complete, the debtor will need to file a statement of compliance with the court. Additionally, a second class may be required after your case has been filed.
Chapter 13 Payment Plan
In a Chapter 13 bankruptcy, the borrower’s goal is to obtain court approval of their proposed payment plan. Borrowers will push for payment plans that pay creditors as little as possible. On the other hand, creditors will be seeking as much money as they can. Therefore, it is essential to hire an experienced bankruptcy law firm in Tampa to protect your rights. Creditors will likely have attorneys, and it can be challenging to battle them without an attorney on your side.
When to File the Chapter 13 Bankruptcy Payment Plan
The payment plan must be filed within 14 days of filing the case. Borrowers should seek the aid of an attorney when submitting the Chapter 13 payment plan. An unsatisfactory payment plan can cause delays and unwanted consequences. The borrower must classify all debts and provide for payment of the indebtedness per bankruptcy law. Once the court confirms the payment plan, it will bind both the borrower and creditors.
What Should be Included in the Bankruptcy Payment Plan
The payment plan should outline how the income the borrower receives will be used to pay the debts owed. The allocation of payments must be feasible for both the debtor and creditor. The plan must provide for secured claims to be paid the present value of the collateral it secures. However, exceptions can be made if the creditor agrees to accept a lower amount or the debtor surrenders the property. On the other hand, unsecured claims only receive as much as they would have received if the debtor filed for Chapter 7.
Under Chapter 13 bankruptcy law, not all unsecured claims are treated the same. For instance, the Chapter 13 bankruptcy payment plan must provide for full payment of all unsecured priority claims. Examples of priority unsecured claims include but are not limited to the following:
- Domestic support obligations – ex. Alimony, child support, etc.
- Administrative expenses of the bankruptcy
- Employee wages and benefits
How Long Chapter 13 Payments Last
The Chapter 13 repayment plan can last anywhere from three-to-five years. If your income is less than the state average income, then you will be in a three-year repayment plan. However, it can be extended up to 5 years if you cannot afford three-year monthly payments. Extending to a five-year plan would not necessarily result in you paying more money to your creditors. Often, the five-year plan just stretches out the payments to make the monthly amount less.
If your income is more than the state average income, you must be in a five-year repayment plan. A bankruptcy lawyer can provide more information on which type of payment plan may be required in your case.
Creditors Rights in Chapter 13
Creditors will likely have attorneys fighting for as much money as possible. For instance, creditors have the right to object to a borrower’s proposed payment plan. However, if the plan allocates funds in accordance with bankruptcy law, the judge must approve it, despite the creditor’s objections. Your bankruptcy lawyer should be well versed in overcoming creditors’ objections, and it is a common practice in Chapter 13 cases.
Approval of a Chapter 13 Payment Plan
If the borrower makes all the payments and satisfies the other requirements, they will be entitled to a discharge. The discharge is a permanent court order releasing the borrower from personal liability on the debt. Further, the discharge prohibits a creditor from taking any collection action against the borrower. In most cases, obtaining a discharge will be the primary reason why a borrower files for bankruptcy. However, there are many nuances of bankruptcy law that can prevent a discharge of certain debts. Therefore, it is vital to seek the aid of an experienced Chapter 13 law firm.
Waiting Periods to Refile Chapter 13 Bankruptcy
If you previously filed Chapter 7, you must wait four years from the date you received your discharge before you can file Chapter 13. If you previously filed Chapter 13, you must wait two years from the discharge for eligibility to refile Chapter 13.
If you previously filed Chapter 13 and now want to file Chapter 7, you must wait six years from the commencement date of your previous case. The “Commencement Date” is the day you filed your bankruptcy petition with the court.
Bankruptcy Law Firm in Tampa
Bankruptcy law can be very confusing, especially when it involves a Chapter 13 bankruptcy payment plan. If you are considering bankruptcy, you contact an experienced Tampa bankruptcy lawyer at Florida Law Advisers, P.A. We are a customer-service oriented firm with a strong reputation for providing personalized attention and dedicated legal counsel. For a free, confidential initial consultation, call us today at (800) 990-7763.
Frequently Asked Questions
Chapter 13 gives homeowners the opportunity to modify their home mortgage. In addition, it may provide up to five years to catch up on missed mortgage payments without additional interest charges. Chapter 7 does not include either of these options.
Yes, homestead (primary residence) is a protected asset in both Chapter 13 and Chapter 7 bankruptcy. Therefore, you may not have to forfeit your home as a condition of the bankruptcy.
Chapter 13 bankruptcy gives borrowers the opportunity to reorganize their mortgage debt into one monthly payment. Additionally, you may be able to discharge most unsecured debts.
Yes, unsecured debts must be less than $394,725 and secured debts must be less than $1,184,200. The amount of debt allowed changes frequently, check with a local attorney for updates.
If you previously filed Chapter 13, you must wait 2 years from the discharge for eligibility to refile. If you now want to file Chapter 7, you must wait 6 years from the commencement date of your Chapter 13.
Yes, when a Chapter 13 case is filed an automatic stay is instantly put into effect. The automatic stay is a federal law that stops all collection activity, including foreclosure sales already scheduled to occur.
The payment plan outlines how debts will be paid in a Chapter 13 case. A plan usually requires the borrower to pay their disposable income for the next 3 to 5 years toward debts. If the borrower completes the plan, balances on credit cards and other unsecured debts at the end of the bankruptcy may be discharged.
In Chapter 13 bankruptcy, the borrower can have up to 5 years to pay off a car loan. This provides time to catch up on payments by spreading the past-due balance over essentially a new 60-month loan.
Yes, some lenders will have no waiting period for new loans. On the other hand, the Federal Housing Administration (FHA) can require you to wait 24 months before being eligible for a new home mortgage.