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(7) Main Reasons
To File Chapter 13
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1. |
To
Stop Foreclosures and Repossessions and
Garnishments:
The minute you file
bankruptcy, your creditors have to stop
all collection efforts....including among
other things...attempts to foreclose on
your house or to repossess your car. It
that cool or what? Only the bankruptcy
laws can do that. In Chapter 7, these
things are only stopped for a few months.
In Chapter 13, these actions can be
stopped for the entire duration of the
Chapter 13 case, which can be as long as 5
years. |
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2. |
To
Give Yourself More Time To Catch Up On A
House or Vehicle Loan:
Not only
does bankruptcy stop foreclosures and
repossessions.....it also give you more
time to catch up on overdue payments.
Let's say you were behind $9,000 behind on
your mortgage payment. By this time, the
creditor is probably refusing to take your
money, and is likely getting ready to or
may already have started foreclosure.
Chapter 13 allows you to repay the amount
you are behind (called
"arrears") in installment
payments through the Chapter 13 Trustee.
For example, if you are $9,000.00 behind
with your mortgage, you could propose to
repay that $9,000.00 without interest by
making 57 monthly payments of $158.00
each. These payments are sent to the
Chapter 13 Trustee, who will distribute
the money to your mortgage company. Upon
completion of your Chapter 13 plan,
assuming you kept your ongoing payments
current, your mortgage loan would be
current and up-to-date. |
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3. |
To
Save Property You Could Not Save By Filing
Bankruptcy Under Chapter 7:
Filing
bankruptcy does not mean you will lose all
your property. In fact...most people who
file bankruptcy don't lose anything. Why?
Because the State where you live has
exemption laws to protect you. These
exemption laws vary from State to
State.... but basically.....exemptions
laws are lists of stuff you can keep and
still file bankruptcy. However, some
people have too much stuff....so much so
that if they file a Chapter 7 bankruptcy
case, they will lose some of it. So...what
can they do? The answer may be: File under
Chapter 13 instead. In Chapter 13, you are
given an opportunity to pay out the value
of the extra stuff, that is the value
above what is covered by exemptions, and
to do so over the life of the Chapter 13
plan, which is usually between 3 and 5
years. Let's say you have $5,000 in the
value of property above and beyond
available exemptions, and let's say your
Chapter 13 plan was going to run for 5
years. You would simply pay the extra
$5,000 in to the Court, so much a month,
for 5 years. This comes out to less than
$100 per month...and in return....you get
to keep your stuff. |
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4. |
Because
You Have Too Much Income:
Sometimes, a
client may simply have too much income to
qualify to file a Chapter 7 bankruptcy
case. This seems odd....doesn't it? Not
enough income to pay the bills....but too
much income to file bankruptcy. What
sometimes happens is that people get in so
much debt or lose income for long enough
that there is just not enough income to
pay all the bills. Well...first
off....bankruptcy gets rid of certain
amounts of debt...and because of
this....it takes less income to pay the
remaining debts and basic monthly
expenses. However, if there is income left
over.....above what is needed to pay these
remaining debts and basic monthly
expenses.....then the law says "you
can't file Chapter 7". This is called
the "disposable income" test.
But you can still file Chapter 13....in
which case you have to pay over to the
Court the extra income....but only for 36
months. But...that's O.K.
because...perhaps for the 1st time in a
long time...you can actually pay your
bills.
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5. |
To Get
Rid Of Debts Which Are Non-Dischargeable
In Chapter 7:
Under the law....some
debts cannot be gotten rid of by filing
under Chapter 7. However...some of these
debts can be gotten rid of by filing
Chapter 13. Examples are certain tax
debts, debt involving fraud or
embezzlement, certain government fines and
penalties (such as moving violations or
parking tickets), or debts resulting from
intentional injury to another person or
property. For example, say you owe
$15,000.00 in income taxes that are 4
years old, but you never filed the tax
return. The taxes are not dischargeable in
Chapter 7, but may well be in Chapter 13.
This expanded list of debts dischargeable
in Chapter 13 is called the "super
discharge" of Chapter 13. |
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6. |
Because
The Payments Are Cheaper In Chapter 13
Than Chapter 7:
Sometimes...when
everything is tallied up, it is just
cheaper each month to file Chapter 13. For
instance...let's say that you owe $15,000
on a car only worth $10,000. In Chapter 7,
you would have to continue paying on the
full $15,000 debt. However, in Chapter 13,
you only have to pay the value of the car,
which is $10,000. (This assumes the
vehicle was purchased more than 2 1/2
years ago.) This saves $5,000 and
likely, this would lower the monthly
payment for this car. And, say you have a
second mortgage for $30,000 on your house,
but there is no value in the house above
the payoff of the first mortgage to secure
it. It is possible in Chapter 13 to
"strip off" this mortgage. In
Chapter 7, it is not. Stripping off this
mortgage in Chapter 13 would eliminate the
second mortgage payment. You can see
where....in certain
circumstances....filing Chapter 13 may
save more money than Chapter 7....making
Chapter 13 the best choice. |
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7. |
Because
It Takes Less Money Up-Front To File
Chapter 13:
When you file Chapter 7,
your attorney must get paid all his fees
up-front before he or she files your case.
Otherwise, the attorney wipes out his or
her own debt. You see....bankruptcy gets
rid of debt...and this can include unpaid
attorney fees. Chapter 13 works a little
differently. In Chapter 13, you make
payments into the Court (actually into a
Chapter 13 Trustee). If your attorney
chooses to do so, your attorney can take
less money up-front from you and collect
the rest of the attorney fees from the
Chapter 13 Trustee, who pays your attorney
out of your Chapter 13 payments.
Sometimes, clients simply cannot come up
with the funds to file Chapter 7. In this
case... Chapter 13 can be a very
affordable alternative. |
Disclaimer:
The above is an oversimplification of the
law. The law is complex and each situation
is different. If you need to file
bankruptcy...or think you might...your
best bet....to see what's right for
you....is to call for a FREE Debt
Consultation. Call toll free
1-800-509-3200. |
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