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To determine the feasibilily of a chapter 13 repayment plan, we would simply look at the debts to be repayed over the course of the chapter 13 bankruptcy. We then divide that number by the length of the chapter 13 plan; which can be from 36 to 60 months.
Jane Homeowner is $10,000 behind on her home loan. Her bank will not work with her on a solution because they will only accept full payment of the past due balance which Jane does not have. She considers filing a chapter 13 bankruptcy, but wants to know if she can afford the repayment. Through chapter 13 bankruptcy, Jane can repay the $10,000 past due over 5 years throught the bankruptcy trustee. $10,000 paid over 60 months would equal $166.66 per month. ($10,000 / 60 = $166.66).
In this example we explore a simple version of the calculations that enter into a chapter 13 plan, if Jane can afford her regular mortgage payment, and $166.66 for the plan payment, her plan would be feasible.
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Simply stated bankruptcy allows people and businesses to immediately stop repaying creditors. Too often the decision to file bankruptcy is made after retirement and saving accounts are empty. Bankruptcy is best filed preemptively at the first sign of hardship before savings are lost. That said, it is never too late to file for bankruptcy protection.
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Parts of the bankruptcy code are specific to property owners. The bankruptcy court is designed to have jurisdiction over a debtor's real property and assets. In preparation for bankruptcy a Massachusetts homeowner should know:
Chapter 13 debtor(s) must attend a creditor meeting, also known as a section 341 meeting. This meeting is typically scheduled within the first 45 days of a bankruptcy case being filed. The chapter 13 trustee presides over this meeting with the main goals of establishing the identities of the debtors and to outline the debtor's responsibilities under the bankruptcy code.
Chapter 13 Trustee
A chapter 13 trustee is assigned to monitor each chapter 13 bankruptcy case in Massachusetts. The assigned trustee is an impartial attorney who is responsible for ensuring the parties comply with applicable bankruptcy procedures and laws. There are two chapter 13 trustees in Massachusetts who oversee the Eastern and Western districts respectively. The United States Trustee Program is run by the Untied States Department of Justice.
Chapter 13 Plan Payments
Chapter 13 plan payments are made directly to the chapter 13 trustee who receives, accounts and distributes the funds to the appropriate creditors. Debtors must make plan payments using certified funds such as money orders; personal checks are not accepted.
Chapter 13Reorganization and repayment
Chapter 13 of the United States bankruptcy code allows debtors to retain real and personal property. By design a chapter 13 bankruptcy allows for the full or partial repayment of secured creditors over a three to five year term. Chapter 13 is only available for individuals and married couples however co-signers and third parties that are obligated on the filer’s debts are protected by extension.
Chapter 13 is often called a wage earners bankruptcy. Wage income is not a requirement for declaring bankruptcy under chapter 13; income of any kind can be used to propose a viable and feasible chapter 13 plan.
People in this chapter of bankruptcy prepare and file a chapter 13 plan that is confirmed by the bankruptcy judge. The plan outlines the partial or full repayment of qualified creditors over a 36 to 60 month period. Plan payments are made to the chapter 13 Trustee who then distributes the funds to the appropriate creditors according to their respective treatment under the confirmed plan.
The Versatility and Power of Chapter 13 BankruptcyDuring chapter 13 bankruptcy it is against the law for creditors to start or continue collection actions like foreclosure and repossession.
By filing for chapter 13 bankruptcy debtors can stop foreclosure, eviction, repossession and any other adverse collection mechanisms such as attachments or wage garnishments. While under chapter 13 protection creditors have no right to directly contact the debtors.
Chapter 13 Plan TreatmentChapter 13 bankruptcy is primarily used to modify secured loans.
Secured creditors are lenders holding loans attached to real or personal property. Home loans and vehicle financing fall under this category as do equity lines of credit, jewelry or furniture financing and property attachments or liens. Standard treatments for secured creditors inside a chapter 13 plan are:
Cure and MaintainArrears to be cured through the plan, long term debt to be maintained by post petition payments.
When a secured loan is delinquent creditors will often reject and return any attempted payments preferring to move forward with reclaiming the property through foreclosure or repossession. By declaring bankruptcy under chapter 13 and proposing a cure and maintain treatment debtors can cure the past due balance over the plan period and maintain the long term debt by making post-petition payments directly to the lien holder as outlined in the original financing agreement or mortgage.
Full CramdownUnsecured or under-secured debt to be crammed down and paid as unsecured debt through the plan; fully secured debt to be paid in full through the plan.
When the property securing a debt is valued at less than the outstanding balance on the loan a cramdown treatment can be considered. Full cramdown treatment is best illustrated using the example of a second loan or home equity line that is secured by underwater real estate. If the market value of the property is less than the unpaid balance on the first mortgage, the second loan or equity line can be stripped as wholly unsecured and reclassified as a general unsecured debt.
Additionally a full cramdown treatment can be used to pay the entire value of secured collateral, at a reduced interest rate, abolishing payments under the existing financing agreement. An illustrative example is when a vehicle loan has an unpaid balance that exceeds the resale value of the automobile. Applying the cramdown treatment will reduce the balance of the loan to equal the asset’s current value. The total amount of the revalued asset will be paid at a reduced or equivalent interest rate over the life of the plan.
To determine the savings through this treatment add the immediate principal reduction to the long term interest payment savings.
Interest CramdownEntire debt will be paid at a reduced interest rate over the length of the plan.
An asset with positive equity that is encumbered by a compounding interest loan can take the interest cramdown treatment. The remaining balance on the existing financing agreement can be paid at a non-compounding lower interest rate.
The cramdown interest treatment may result in higher monthly payments, however the savings are realized through the reduced non-compounding interest rate, and modification of the repayment term.
To calculate the exact dollar amount saved subtract the total interest to be paid through the bankruptcy plan from the total interest that will be paid under the current agreement.
AvoidLien will be removed pursuant to bankruptcy law.
Lien avoidance treatment is taken when a creditor has attached a debt to any property of the debtor. In most cases attachments from civil lawsuits brought by creditors and collectors can be permanently removed from the debtor’s property by using this treatment.
Once a lien has been avoided the underlying debt gets placed into the general unsecured non-priority category to be discharged along with similar debts such as medical bills and credit cards.
SurrenderCollateral will be surrendered to the creditor.
This straightforward treatment is used when a debtor no longer wants the encumbered property or collateral. The property is valued and returned to the creditor with any deficiencies grouped with other unsecured claims. In the event the property has positive equity, the proceeds are incorporated into the debtor’s bankruptcy estate and can be used to fund the chapter 13 plan.
ExcludeClaim will receive no distribution through the bankruptcy plan.
Excluding a secured creditor from the bankruptcy plan means the existing financing agreement or mortgage does not require any alteration or bankruptcy treatment. The debtor is expected to provide for the long term debt by directly making payments under the original contract.
OtherAny treatment proposal that is approved by the bankruptcy court and the secured creditor.
The versatility and power of a chapter 13 bankruptcy is derived from the treatment of secured creditors under the chapter 13 plan. The provisions in each plan should be specifically tailored to the debtor’s intentions and objectives. In addition to the standard treatments outlined in this article, an experienced and creative bankruptcy attorney can propose a wide variety of options for modifying secured debts under chapter 13 of the bankruptcy code.
Since 1997 the Pérez-Kudzma Law Office has been serving the residents of Massachusetts in all chapters of bankruptcy.
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Chapter 7Liquidation and Exemptions
The most common bankruptcies are those filed under chapter 7 of the United States bankruptcy code. Chapter 7 is designed primarily to remove credit cards, medical bills and other unsecured debts like utilities and collections. Taxes and other government debts can also be included in your chapter 7 as long as the bankruptcy requirements regarding those debts are met.
Unlike other chapters of bankruptcy there is no restructuring or repayment plan and therefore chapter 7 limits what can be achieved with regard to secured creditors like home and auto loans. You can keep your assets through chapter 7, but you must maintain timely payments on the loans and any equity must be exempted from the bankruptcy estate.
A thorough examination of your assets and the federal or state bankruptcy exemptions must be conducted prior to opening a chapter 7 bankruptcy. Without a comprehensive evaluation the chapter 7 bankruptcy trustee has the authority and power to sell your non-exempt assets.
We know the law and will be sure to exempt your assets from your bankruptcy case. Our thorough pre-filing intake procedure ensures you and your case are prepared for chapter 7 success.
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A commonly held belief is that bankruptcy is disgraceful and that the negatives far outweigh the benefits. As a result, many people needlessly struggle with their debts and impair their financial future. Bankruptcy is a tool used for economic gain, and when used correctly will create a secure foundation from which future wealth can be built.
Simply stated bankruptcy allows people and businesses to be freed from repaying debt. It should be used whenever financial obligations create economic harm. The two main types of bankruptcy are known as liquidation and reorganization. Counter intuitively liquidation bankruptcy often does not involve any liquidation or loss of property.
The rules of bankruptcy are determined by federal laws, and those laws are written to benefit not harm the legitimate bankruptcy filer. Generous exemptions exist to protect assets from liquidation and provisions can be made for case specific circumstances. The benefit of working with our experienced bankruptcy attorneys is that prior to opening a case, a comprehensive evaluation is conducted to determine any potential complexities.
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We guarantee to provide our clients with quality legal representation at a reasonable cost. At your free consultation you will receive dependable bankruptcy advice. Because we know bankruptcy law and how it can help you, in addition to answering your questions your attorney will conduct a legal analysis of:
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Your free consultation is designed for you and your attorney to confidentially examine your particular money problems to discuss cost effective and wealth building solutions.
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If you are not 100% satisfied with the legal services provided, we will absorbe the cost of your pre-bankruptcy credit counseling certification(s).
Active creditors at the time of your filing must begin to report the debt as subject to bankruptcy. This effectively prevents a continued decline in your credit score. The public record of your bankruptcy is reported as of the date of the filing.
The simple answer is to explore chapter 13 if your bankruptcy objectives are incompatible with the restrictions of chapter 7. Compared to chapter 7 chapter 13 has:
The United States bankruptcy court accepts petitions filed by debtors under bankruptcy law. In addition to the debtor,(the person, married couple or corporation that declares bankruptcy) a bankruptcy case has a judge, a trustee and creditors.