How are mortgages treated in Chapter 13?

Most mortgages take longer than the five years to pay, and therefore, mortgages are normally paid directly. In the usual case, you will make mortgage payments each month in the regular amount as they come due in the future. In Chapter 13, only the “arrearage” (amount needed to bring the mortgage current as of the date of bankruptcy) is paid “through the plan”. The Chapter 13 Trustee catches up the “arrearage” over time with your “plan payments”.

In Chapter 13, what are “plan payments”? How much are they, and when do they start?

“Plan payments” are payments established in your plan that you prepare with the lawyer. You will make these payments each pay day to the Chapter 13 Trustee, who in turn pays your creditors. Creditors are required to look to the Trustee for payment, and can not collect from you directly (with a few exceptions, such as mortgages and leases: see below).

Plan payments are used to pay debts (other than current mortgage payments), such as cars, furniture, credit cards, etc. Chapter 13 lowers your contractual payments because these debts are usually paid slower than they would be under the contract. In Chapter 13, no interest is paid on unsecured debt, and in some cases, unsecured debts may be paid less than 100 cents on the dollar. Secured debt is paid with modified interest that is usually lower than the contract rate.

The amount of your plan payments depends on two things. One is the amount of debt you are paying through your plan, and the other is your ability to pay. The amount is carefully worked out with your lawyer so that the amount works for you, and also will work for your creditors. It’s a question of balance.

Plan payments start accruing as soon as the case is filed. Thus, one month after the case is filed, you will owe one month’s worth of payment.

Are there some kinds of debts that I can’t bankrupt on?

Yes. In Chapter 7, there is a short list of “non-dischargeable” debts that will pass through bankruptcy without being discharged. Some common types are child support, student loans, and recent taxes. Less common types include drunk driving debts and debts incurred by fraud.

Chapter 13 is often used to repay “non-dischargeable” debts over time under the protection of the court. Thus, you can repay past due taxes, past due child support, and student loans through Chapter 13, even though you can’t discharge those debts without payment.

Can I leave debts out of my case if I want to?

No. But that does not mean that you will lose the property. For example, mortgages are listed Chapter 13, but unless you choose to surrender the property, you would continue to pay the mortgage directly as those payments come due in the future. In Chapter 13, you also list debts that you can’t discharge without payment, such as student loans (see below).

In Chapter 13, you also list all co-signed debts (see below), whether your name is listed first or second. Then, in your plan, you indicate whether the co-signer is going to pay the debt or whether you are.

In Chapter 7, you would also list the mortgage and all other secured debt, regardless of your “intentions” with regard to what you want to keep. If you are “reaffirming”a secured debt, that is, keeping the property and continuing to pay the debt on it, then you list the debt in one place, and indicate your intention to keep the property in another place. Alternatively, you may list the debt and indicate that you intend to surrender the property and discharge the debt without payment.

Do you lose your property when you file Chapter 7?

Hardly ever. In Chapter 7, the Court is not interested in your property except to the extent that it has equity in it… that is, to the extent that it is worth more than what you owe on it. (To the extent of any lien on it, it really belongs to the creditor. Thus, the value of your property is important). You are allowed to protect (“exempt”) your equity in property up to certain dollar limits in different categories of property, such as in your residence, your automobiles, your household goods, etc.
The vast majority of Chapter 7’s are “no asset” cases where nothing is lost or surrendered. If you have substantial equity in something, you would want to bring it up and discuss it with the lawyer before you file to see if it might cause a problem. If you are subject to losing something in Chapter 7 that you don’t want to lose, then Chapter 13 may be your best option.

What are the benefits of filing bankruptcy, and when do those benefits start?

The benefits start automatically the instant the case is filed electronically. Bankruptcies will stop the filing or continuation of lawsuits, harassing phone calls, garnishments, foreclosures, and repossessions instantly as a matter of law.
We usually file cases on the same day that you first come in if:
1) you have all the information we need,
2) you understand your options and are clear about what you want to do,
3) your situation is one in which a bankruptcy will help you, and
4) you have the filing fees needed to file the case (that depends on the kind of case you
are filing, and you’ll need to ask about it)

What’s the difference between Chapter 7 and Chapter 13?

Chapter 7 and Chapter 13 are different tools that are used to handle different financial problems. Chapter 13 is a debt consolidation plan used to repay debt in full or in part over a period of years. Chapter 7 is a fresh start or liquidation case that is usually finished after only a few months.

In Chapter 13, you can force secured creditors like mortgage lenders or car lenders to allow you to cure defaults over time, whether they agree or not. In Chapter 7, unsecured debts are discharged without payment, and you indicate your preference (intent) as to whether or not you want to “reaffirm” and keep paying your secured creditors. Alternatively, you may surrender the collateral and discharge the debt. If you are behind on secured debt, the secured creditor can require you to surrender the collateral in Chapter 7, unlike in Chapter 13. If you are current in your payments, secured creditors almost invariably will want you to “reaffirm” their debt.