How to File Chapter 13 Bankruptcy in Arizona, Utah, Washington and Idaho
Chapter 13 of the United States Bankruptcy Code is entitled "Reorganization." In a Chapter 13 bankruptcy, the debtor will make a monthly payment to the trustee for a period of three to five years, and the trustee will distribute those payments to the debtor's creditors. There are many reasons to file a Chapter 13 as opposed to a Chapter 7. The following is a brief overview of the main factors:
Stop Foreclosure and Vehicle Repossession
The filing of a Chapter 13 can stop an imminent home foreclosure, vehicle repossession, and garnishment of wages. As a result of an "automatic stay" which occurs immediately after the bankruptcy is filed, creditors are prevented from taking their remedies in the event of default on the mortgage or car payment. In many cases a debtor might be able to catch up the back payments (sometimes referred to as "arrears") but they simply can not pay the full amount of the back payment. Unfortunately, many secured creditors will accept nothing less than the full amount of the back payment or else they will pursue their remedies in foreclosure or repossession.
Chapter 13 can stop a creditor from foreclosing on your home or repossessing your car and give you the time to cure the back payments over a three to five year repayment plan through the bankruptcy trustee.
While the relief available through Chapter 13 under this scenario is significant, it is important to remember that a debtor must financially qualify for Chapter 13 for a reorganization plan to work. This means the debtor must have sufficient income at the end of each month after reasonable expenses are deducted to pay back the full amount owed to their secured creditors over the duration of the Chapter 13 plan. Also, it is very important to understand that only the back payments on home loans are reorganized through Chapter 13. The current monthly payment on the home loan must be paid to the secured creditor outside of the Chapter 13 plan. However, in regards to vehicle loans, both the back payment and the monthly payment going forward are made to the trustee. As a benefit of filing Chapter 13, the payoff amount of the vehicle may be lowered through a process called "cram down."
Stop Garnishment of Wages
If any creditor has obtained a judgment and has threatened to, or already begun a wage garnishment, a Chapter 13 filing can stop that process immediately. The judgment creditor will receive payment along with any other creditors through the Chapter 13 plan.
NOTE: If you are seeking to avoid a foreclosure, repossession or wage garnishment, time is of the essence. If a secured creditor obtains their remedy before you file the bankruptcy petition, it may be too late. Contact our office immediately if you are behind on your payments to discuss your options under Chapter 13.
Taxes/Family Support Obligations
Most tax liability is not dischargeable under Chapter 7 (with limited exceptions) but can be paid through a Chapter 13 plan. Often, the interest and penalties associated with the underlying tax obligation can be eliminated in Chapter 13. Child support and alimony payments are also not dischargeable in Chapter 7 but can be reorganized through Chapter 13. Again, it is important to realize that a debtor must qualify financially before a Chapter 13 case will be approved.
Excessive Income Cases
As mentioned above, sometimes a debtor simply makes too much money to qualify for a Chapter 7. Although many people in this situation do not qualify for Chapter 7 under the trustee's income and expense guidelines, they nevertheless are struggling financially and are in need of relief. A Chapter 13 plan will generally result in a substantial partial discharge for debtors in this category.
Retention of Non-Exempt Assets in Chapter 13
Some debtors have assets that are non-exempt in bankruptcy. For financial reasons, and sometimes personal reasons, a debtor may want to retain an otherwise non-exempt asset but still file for bankruptcy. While this is not possible in Chapter 7, a debtor may be able to accomplish this objective in Chapter 13. In a process called "reconciliation with Chapter 7," a debtor that financially qualifies, may be able to pay back the amount of the non-exempt asset that would have been liquidated under Chapter 7 to the Chapter 13 trustee and keep the subject property.
Personal Reasons for Chapter 13
In some cases a debtor may want to pay back at least a partial amount of their debt through Chapter 13 rather than receive a complete discharge under Chapter 7.
We Can Help!
There are many factors to consider in determining which type of bankruptcy to file. At Keith Barton & Associates, we will help you decide whether a Chapter 7 or Chapter 13 is best for you. If your world has been turned upside down because of the recent economic turmoil, let us help you get the debt relief you need. Bankruptcy is about starting over and the Keith Barton bankruptcy attorneys can help you get your financial situation turned around.
Call us right now at 1-800-416-8010 or submit a bankruptcy evaluation form. We are available 24 hours a day, seven days a week and you will hear back from us in 30 minutes - "It's Just That Easy."
