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Chapter 13 Bankruptcy

HOW CAN A CHAPTER 13 BANKRUPTCY BENEFIT YOU?

Chapter 13 is a very different code than the Chapter 7 code.  In a chapter 13, the debtor enters into a 3 year or a 5 year repayment plan.  A chapter 13 can be a powerful tool to help you in the following ways:

  • It can stop a foreclosure.
  • It can allow you to spread out the arrears on your home mortgage over the course of 5 years.
  • It can stop wage garnishments.
  • It can remove a second lien off your home.
  • It can reduce the interest rate on your vehicle.
  • It can help you get your driver's license back upon filing.
  • You can pay back taxes or back child support over five years.

During the course of the 5 year chapter 13 bankruptcy, you will make a monthly payment to the Chapter 13 Trustee, and the Trustee will make the disbursements to your creditors in accordance with a Plan that we will file and negotiate on your behalf.  In a Chapter 13 bankruptcy,  usually the credit card debt and medical bills referred to as unsecured debt will not get paid or will get paid very little and at the end of the plan, those debts will get discharged the same way they would in a Chapter 13 bankruptcy.

WHO SHOULD FILE FOR A CHAPTER 13 BANKRUPTCY?

Chapter 13 is commonly referred to as the "debt consolidation" or a "repayment" tool.  Chapter 13 of the Title 11 United States Bankruptcy Code governs the process of reorganization of the Debtor of Bankruptcy law of United States.  Chapter 13 is also often called wage-earner bankruptcy and is used primarily by individual consumers to reorganize their financial affairs under a repayment plan that must be completed within three or five years. To be eligible for Chapter 13 relief, a consumer must have regular income and may not have more than a certain amount of debt, as set forth in the Bankruptcy Code. Most people who file a Chapter 13 usually do not qualify for a Chapter 7 for one reason or another, or a Chapter 7 will not help them with the problem that they are having.  Filing a Chapter 13 bankruptcy can immediately stop an impending foreclosure on your home and wage garnishments, and all creditor actions.  If you owe student loan debts and are unable to work out an affordable payment with the them because they are asking more than you can afford, filing a Chapter 13 can help force the student loan creditor to accept the amount you can afford monthly.  Similarly, if your driver's license is suspended, we can obtain an affordable monthly payment for you that will result in your license being reinstated in most cases.  Some people have tax debt that must be paid, but they are unable to obtain a favorable monthly payment.  A Chapter 13 can help your situation in a variety of ways.  In some cases, second mortgage liens can be removed from your house, or we can obtain a lower payment for your car.  Only an experienced and qualified Bankruptcy attorney can evaluate your situation and determine if a Chapter 13 will help you.  You must have some disposable income left over at the end of your month to fund your Chapter 13 bankruptcy.  The Bellevue bankruptcy attorneys at Hallaq Law can assist you the complex process of filing for a Chapter 13 bankruptcy in one of our convenient office locations in Kent, SeaTac, Bellevue or Arlington.

WHAT IS THE CHAPTER 13 BANKRUPTCY PROCESS?

The purpose of chapter 13 is to enable an individual with a regular source of income to propose a chapter 13 plan that provides for their various classes of creditors. Under chapter 13, the Bankruptcy Court has the power to approve a chapter 13 plan without the approval of creditors as long as it meets the statutory requirements under chapter 13.  The term of a Chapter 13 is three to five years, not to exceed five years.  After you find an experienced bankruptcy attorney, you can do an analysis of whether you qualify for a Chapter 13 bankruptcy and whether it will benefit you.  The attorneys at Hallaq Law can help you determine this at your free initial consultation. A debtor must be under a debt limit of $1,149.515 of secured debt and $383,175.11 of unsecured debt  Your attorney will assist you in reviewing your household size, your income, your assets, and your liabilities.  You will be required to submit some of these documents in support of your chapter 13 filing.  You will also be required to submit the last two years of tax returns and you may do so through our office.  After the initial consultation, you will have an understanding of what a chapter 13 bankruptcy can accomplish for you and what steps need to be taken next.  After you've submitted the required documents to our office, you will need to take the first credit counseling class, pay our attorney's fees, and have another meeting with us where we will review your petition with you for accuracy, calculate a monthly payment amount that will be paid to the Trustee (the amount is subject to change on the proofs of claims and the dollar amount of your debt) and then sign your petition.  At that time, your chapter 13 can be filed with the court and you will be automatically assigned a 341 court date approximately 30 days after the filing date.  Your first payment to the Chapter 13 Trustee should have been made by the time you have your court date. 

WHAT DOES A CHAPTER 13 BANKRUPTCY DO THAT A CHAPTER 7 CANNOT?

Filing a Chapter 13 may have some benefits depending on your individual situation and what your goals are.  For most people, they file a Chapter 13 because it gives you a chance to save your home from foreclosure.  A Chapter 13 can allow you to pay back past due mortgage payments over the course of three to five years.  You can also pay back past tax debt over the course of your Chapter 13 plan.  You can reset the terms of your car loan if the loan is over 2.5 years old.  You can manage high student loan payments in a Chapter 13 plan.  A Chapter 13 may be a great option if you have previously filed a Chapter 7 case in the last 8 years and you cannot file another Chapter 7.  You may be able to protect property in a Chapter 13 that you could not in a Chapter 7.  Your attorney's fees can be paid back in the Chapter 13 plan instead of paying a lump sum upfront.  Finally, you may file a Chapter 13 and receive the protection of the Bankruptcy Court even if you make too much money.  

DO I HAVE TO GO TO COURT WHEN I FILE A CHAPTER 13 BANKRUPTCY?

Yes, you have one mandatory court appearance called a "341 hearing".  Your 341 court date is mandatory and it is generally 30-45 days after the filing of your case.  We will be with you and represent you at this hearing.  The court testimony time itself should take 5-10 minutes but you should plan to be at the courthouse for at least an hour.  The Chapter 13 Trustee will ask you questions based on the information in the petition and the documents you have submitted to the court.  The Trustee is looking to verify the existence of any assets, third party claims, any transfers made that were not permissible within the Bankruptcy Code, and the Trustee is also verifying that the proposed repayment plan is appropriate to pay your creditors. Generally speaking, you only need to attend the 341 hearing.  Your attorney may attend subsequent hearings in your case but your attendance is not mandatory.

THE HALLMARK OF A CHAPTER 13 IS THE PLAN PAYMENT: CAN YOU AFFORD IT?

The central focus of your Chapter 13 is your "plan".  Your plan will dictate the course of your Chapter 13 case.  It will set the amount of your payment, the frequency of your payment, how various creditors are treated, the priority of creditors who receive payment, and any other unique options that you may have proposed.

Unless the court grants an extension, the debtor must file a repayment plan with the petition or within 14 days after the petition is filed. Fed. R. Bankr. P. 3015.  A plan must be submitted for court approval and must provide for payments of fixed amounts to the trustee on a regular basis, typically biweekly or monthly. The trustee then distributes the funds to creditors according to the terms of the plan, which may offer creditors less than full payment on their claims.  There are three types of claims that the Court will treat accordingly:  priority, secured, and unsecured.  Priority claims are granted special status.  Secured claims are claims where you have something that is tied to the debt and thus the creditor could take back the collateral.  Unsecured claims are your medical bills and credit card debts and in these cases, those creditors have no special rights and cannot collect against your personal property.  Priority claims need to be paid in full unless that particular creditor has negotiated a different agreement with you.  With regards to secured claims, if you want to keep your collateral, you must pay back at least the value of your collateral to that creditor in your plan.  You must be able to pay the following debts over the course of your plan:  past due mortgage, taxes, child support, student loans, attorney's fees, and you could possibly be paying on a current mortgage payment or a current car loan.  The amount of payment due will be determined by the amount and type of debt you owe, your income, and your necessary expenses.

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