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CHAPTER 13 BANKRUPTCY
Debtors can modify secured obligations by cramming down liens to the value of the collateral. For example, a vehicle that was purchased 4 years ago and is substantially “under water” can be crammed down to the fair market value of the collateral. Wholly unsecured liens can also be stripped down and discharged as regular unsecured debts. Unexempted property, i.e. property in excess of the available exemptions, can be retained by Debtors, as long as the value of the collateral is paid to the creditors.
Chapter 13 Debtors can continue to operate their business and use their income for the purpose of making Chapter 13 payments. If debtors lack a stable income or otherwise unemployed, they can rely on contributions from their spouse or other family members to pay their bankruptcy plan payments.
Any individual, even if self-employed or operating as an unincorporated business, is eligible for Chapter 13 Bankruptcy, as long as the individuals’ unsecured debts are less than approximately $394,000 and secured debts are less than $1,184,200. These amounts are adjusted periodically to reflect changes in the consumer price index.
Foreclosures, garnishments, repossessions can be stopped immediately upon the filing of the petition. Debtors can file a “bare-bone” emergency petition to stop the imminent foreclosure of the Debtors’ primary residents or investment real estate property.
Payment plans are from 3 to 5 years, depending on the income of the debtor’s household. However, a below-median income debtor can still propose a 5-year plan to reduce their monthly payments to the minimum. 5 year plans can also benefit the Debtors who are trying to pay off their car loans or other secured obligations and obtain a vehicle with a lien-free title.
Common Chapter 13 Bankruptcy Scenarios
Common Bucks County Chapter 13 Bankruptcy Scenario No. 1: A married Debtor with 3 children and a primary residence, a house, with approximately $25,000 of equity.
Debtor has full-time employment with regular income below $100,000 gross annually. Debtor fell behind on the mortgage payments, lost their foreclosure case and the debtor’s house if placed on the Bucks County Sherriff’s sale list. The sale is scheduled sometime next week. Debtor seeks to stop the foreclosure proceedings and the sheriff sale and catch up on the mortgage.
Debtor can file Chapter 13 Bankruptcy as long as the case if filed before the actual sale of the property and sale will be stopped. Debtor can propose a payment plan as long as the plan confirms with the applicable requirements of the Bankruptcy code, catch up on the mortgage payments and retain the property.
Common Bucks County Chapter 13 Bankruptcy Scenario No. 2: A single debtor was laid-off two years ago and accumulated some credit card and personal loan debts.
Debtor has no real property or other unexempted assets. Debtor has a paid-off vehicle, household furniture, electronics and other items that will be except under the available exemptions and retained by the Debtor. Debtor was unable to find employment and become an independent contractor, an installer, receiving a 1099 self-employment income.
As a result of the self-employment, Debtor failed to set aside income taxes and now owes the IRS a substantial sum of taxes. Debtor wants to discharge his credit cards and personal loans and also pay back his back-taxes and avoid garnishment, liens and other collection actions by the creditors and the IRS.
Debtor can propose a Chapter 13 payment plan, discharging the unsecured debt and payment back the priority taxes. Debtor will retain his property and possessions.
Common Bucks County Chapter 13 Bankruptcy Scenario No. 3: A married debtor with 1 child and a primary residence, a house, with approximately $50,000 of equity.
The debtor’s house was inherited from his deceased parents. Debtor has a full-time job with regular income below $40,000 gross per year. Debtor failed to pay property taxes for about 1 year and the house was scheduled for a tax sale in the next week. Debtor seeks to stop the sale and pay back the delinquency.
Debtor can file Chapter 13 Bankruptcy and, as long as the case is filed before the actual sale of the property, the sale will be stopped. Debtor can propose a payment plan and, as long as the plan meets with applicable requirements of the Bankruptcy code, can catch up on the mortgage payments and retain the property.
Chapter 13 Bankruptcy Timeline
Between 21 and 50 days after the debtor files the Chapter 13 petition, the trustee will hold a meeting of creditors, called a 341 meeting. Generally, the debtor can avoid problems by making sure the petition and plan are complete and accurate and by consulting with the trustee prior to the meeting.
Debtor must make their first payment plan within 30 days from the filing of the petition. Sometime after, bankruptcy court will review the plan and, unless a creditor or Chapter 13 trustee objects any provision of the plan, the plan will be confirmed with the court. Once confirmed, the plan and its provision is binding on the creditors and debtors. Depending on the district and the circumstances of the case, debtors can expect their case confirmed within 3-5 months after the filing of the petition. If the case cannot be confirmed, it will be dismissed. The case can also be dismissed for a failure to provide documents, make payment(s) or other good reasons. If debtors abuse the bankruptcy course or if debtors are repeat filers in bad faith, bankruptcy courts can prohibit future filing and dismiss bankruptcy cases with prejudice.