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Chapter 13 is sometimes called "debtor's court." In Chapter 13, you make a regular payment to the Chapter 13 trustee who then distributes money to your creditors on a monthly basis. The amount you pay to the trustee is based on two things. First, you must pay into your Chapter 13 case the total amount of your monthly disposable income times 36. Your disposable income is the amount of money you have left each month after paying your basic living expenses. Second, you must make sure that your creditors receive as much through the Chapter 13 case as they would have received through a Chapter 7 case. This basically means that you must pay the greater of (a) your disposable income times 36, or (b) the value of the equity in your property. As with a Chapter 7 case, the value of your equity is the amount the creditors would realize taking out your exemptions, the costs of sale, and the administration expenses. If you have no equity, your payment is based solely on your disposable income. In your initial consultation, the attorneys at Dionne & Dionne will go over all of your assets and debts and tell you how your Chapter 13 payment will be calculated.
Chapter 13 offers debtors many advantages including:
- In Chapter 13 case you do not have to prepay your entire attorney fee prior to the filing of your case. You do have to pay a minimum of $210 which covers certain costs and expenses.
- In Chapter 13 you do not have to be concerned about losing any of your property. You keep all of your property. If you have excess equity in your property, you will pay that value, over time, as part of your payment to the trustee.
- Chapter 13 allows you to cure arrearages owed on your home or cars. You must still make your regular payment each month but Chapter 13 gives you a way to pay the amount you are behind over a period of time.
- No interest is paid to unsecured creditors in a Chapter 13 case. This feature means that the amount you owe to unsecured creditors is fixed on the day of the filing of the case. You will not incur any further late fees, interest charges, over limit fees, or other charges.
- As with Chapter 7, the filing of a Chapter 13 case will stop your creditors from harassing you. You will finally be able to stop worrying about the phone ringing. It will also immediately stop all lawsuits and garnishments.
- You can protect someone who co-signed on a consumer loan with you. As long as you propose to pay the debt in full, the creditor cannot sue the co-debtor while you are in Chapter 13.
- In some circumstances you can lower your interest rate and/or your payment on your car loans. The bankruptcy code does not allow for the modification of your mortgage on your principal residence.
Chapter 13 does have some disadvantages including:
- Only individuals with regular, stable income can file a Chapter 13 case.
- You will be under the supervision of the Court for a period of 36 to 60 months. In a Chapter 7 case, you receive your discharge in about 120 days. In a Chapter 13 case, you don't receive your discharge until you complete your plan which will take from 36 to 60 months. If you fail to meet all the requirements of your plan, your Chapter 13 case can be dismissed without you receiving a discharge. This will leave you in a position of still owing all of the debt you had at the beginning of your case less any payments you made while you were in Chapter 13.
- You cannot incur any new debt while you are in Chapter 13. If you have to purchase a new car or refinance your home, you will have to get the trustee's approval while you are in Chapter 13.
- It is more expensive to file a Chapter 13 case than a Chapter 7 case. Generally speaking, the fee for a Chapter 13 case will be $1000 to $1500 higher than the fee you would pay for a Chapter 7.
- You can pay any back child support or alimony that you owe over time; however, you must remain current on your alimony and support payments after you file your case. If you fall behind in these payments, your case can be dismissed.
- Student loans are generally not discharged in a Chapter 13 case and are treated like all other unsecured creditors. As such, if you are paying a small percentage of the amount you owe to your other unsecured creditors, your student loans will receive that same percentage. At the end of your case, the remaining balance of your student loans, plus accrued interest will still be owed.
- Failing to your file tax returns or pay taxes which become due after your case is filed, can result in your case being dismissed.
- A Chapter 13 case in which you pay less than 70% of the amount owed to unsecured creditors has the same effect as the filing of a Chapter 7 case. Rather than being done with your case in 120 days, you will remain in bankruptcy for 36 to 60 and your case will be treated as if it were a Chapter 7 case.
If you are ready to take charge of your financial life, call the attorneys at Dionne & Dionne. We will meet with you and provide you with a free initial consultation. Don and Melinda will take the time to get to know you and your situation. They will help you develop a plan that will provide you with the relief you need.
Please call us today to set up your free initial consultation.
Dionne & Dionne
6726 Old Greensboro Road, Suite A
Tuscaloosa, AL 35405-5979
Phone: (205) 349-5911
Inside 205 Area Code Toll Free: 1-800-BANKRUPT (1-800-226-5787)
Nationwide Toll Free: 1-888-263-1525
Fax: (205) 409-0294
E-mail