Understanding Chapter 13
Correctly done, Chapter 13 bankruptcy can enable individuals with regular income to stop foreclosures or repossessions, catch up house payments, re-work car loans, and eliminate unsecured debt. (Like Chapter 7, it also stops creditor harassment, lawsuits, garnishments, bank levies, judgments and judgment liens.) Incorrectly done, Chapter 13 bankruptcy can be an expensive waste of time and resources that can leave you in the same or worse position as when you began the case. It is, then, essential that you understand what is required to succeed in a Chapter 13 case.
A properly-prepared Chapter 13 bankruptcy case is based on two basic, common-sense ideas: (1) you cannot pay your creditors more money than you have, and (2) to keep your property you should not have to pay your creditors any more than the value of what they could have taken away from you if you hadn't filed bankruptcy. Thus, the "disposable income test" means that your payment should be based on what you have left over after meeting your family's reasonable and necessary living expenses. The "best interest of creditors test" means that you may keep your property as long as you pay your creditors over time an appropriate value for that property.
Matching Your Payment to Your Ability to Pay
In Chapter 13 bankruptcy, the court can let you reduce and re-work your debt into a payment plan determined by your ability to pay. The payment should be based upon the income you have left over after meeting your household and other necessary living expenses (such a groceries, utilities, phone, gas, medical and prescription needs, insurance, and others). Current law will not allow you to lower your home mortgage payment-- it will, however, give you up to five years to catch up any mortgage payments you have missed by paying a small amount extra each month. Current law does permit you to reduce the payment-- and even lower the interest rate-- on many car loans and other secured loans.
You are only required to pay back as much of your unsecured debt (such as credit cards and medical bills) as you can afford to pay. In most cases you should only have to pay a portion of that unsecured debt back. This is the very important distinction between Chapter 13 and non-bankruptcy consumer credit counseling-in Chapter 13 you only have to pay back a part of your unsecured debt, and you pay no interest. After completing your payments for a specified three to five year period, the remaining portion of your unsecured debt will be discharged and forgiven by the court.
While this may sound attractive, you need to understand that if you are unable to make the plan payments set for you, your case will be dismissed, you may still be behind on house and car loans, and your creditors can proceed against you and your property.
Limitations and Pitfalls of Chapter 13
In recent years I have reduced my use of Chapter 13 as debt relief tool for my clients. Many times, the payment demanded by the Chapter 13 process is unrealistic and unaffordable. In many instances I have found that it is a better solution for my clients to focus their resources on getting and keeping their house and/or car payments current and seeking Chapter 7 bankruptcy relief on their other debt. I will be happy to discuss your budget and goals with you and help you decide yourself whether Chapter 13 bankruptcy is necessary and appropriate for your needs.
Knowledge and Experience
During my career, I have had the opportunity to view the bankruptcy process through a variety of perspectives, including my service as a judicial law clerk to a United States Bankruptcy judge and my time as a member of the panel of Chapter 7 Bankruptcy Trustees for the Eastern District of Tennessee. I have seen what makes the bankruptcy process work and what makes it not work. I know that the most important key to a successful Chapter 13 case is a candid, careful, accurate analysis of your actual ability to pay-- there is no substitute here for clear thinking or attention to detail. I will not propose or approve a Chapter 13 plan unless you and I are certain that it is one that you can really afford and one that you can expect to successfully complete.
I am bankruptcy attorney C. Edwin Shoemaker. Over the past 25 years, I have assisted many individuals and small businesses in Knoxville and the surrounding area in successfully commencing and completing Chapter 13 bankruptcy relief. I am committed, as a lawyer, to providing my clients an effective and affordable solution to their financial problems. Contact me online or call 865-686-5104 or 877-771-1980 to arrange a free initial telephone consultation to discuss your situation and your options.
Contact me online or call 865-686-5104 or 877-771-1980 to arrange a free initial telephone consultation and to discuss whether filing for Chapter 13 bankruptcy is right for you. My office is open weekdays, 8:30 to 5:00, and I am available via voicemail. I offer telephone consultations and flexible appointments, including evenings. Payment plans are available.