Chapter 13 Bankruptcy – Kansas
Chapter 13, also known as the “wage-earner’s plan”, also “wipes out” the same unsecured debt that Chapter 7 does, and sometimes more. For example, debts you were ordered to pay in a divorce may not be dischargeable in a Chapter 7, but are dischargeable in a Chapter 13. In addition, Chapter 13 allows you to consolidate your secured debt and non-dischargeable debt into one monthly payment at a lower interest rate than you are paying now; and that payment is usually much lower than your present debtpayments.
Advantages of Chapter 13
For someone who has a lot of secured and/or non-dischargeable debt or who is being threatened by repossession, foreclosure or garnishment, Chapter 7 often does not provide enough protection. Usually, if you are behind on your house or car, it would be difficult to catch up on the missed payments in the short length of time Chapter 7 allows. Also, our experience has been that folks who are being garnished find it next to impossible to come up with the necessary fees to pay for a Chapter 7 upfront, unlike Chapter 13, which allows you to pay your fees in monthly payments after filing.
In Chapter 13, we add up the total of your secured debt (excluding your house payment and any lease payments or rent-to-own payments, which you would continue to make outside of bankruptcy) and non-dischargeable debt, and arrange a payment plan which can last from 36 – 60 months, depending on how much you owe and how much you can afford to pay per month. You would make these monthly payments, based on your budget, to a Trustee, who would then pay your creditors out of your payments. During the time you are making these payments, the creditors cannot bother or harass you. Once you have completed making all the payments, you would be debt-free (except for your mortgage and unpaid student loan balances, if any). If your budget shows that you have “extra money” left over, it could be paid to your unsecured creditors. However, we seldom find this to be the case, and your attorney should be able to determine, at your free consultation, what your payment would be and what would be paid (and what wouldn’t).
Also, as noted above, some debts such as taxes are not dischargeable in bankruptcy. For example, if you owed the IRS $10,000, Chapter 7 could not help you, and the IRS would still want their money immediately. However, in Chapter 13, the IRS must get their money from the monthly payments, and would not be able to force you to pay sooner.
Another advantage of Chapter 13 is in the amounts you can pay back. Remember the car example from the previous section? If you have a car worth $3,000, and you owe $5,000 on it, in Chapter 7, you have the following choices:
- Surrender the car and wipe out the debt;
- Pay the $3,000 value of the car in cash now, keep the car and wipe out the remaining $2,000 excess debt; or
- Pay the entire $5,000 in payments as per the original agreement.
In Chapter 13, in certain circumstances, you may be able to pay whichever is less – the amount owed or the value. In the above example, you need only pay the $3,000 actual value of the car, and you would do it through the payment plan. In addition, secured loans paid through the plan (such as car loans) are paid at a heavily-discounted interest rate.
A final advantage of Chapter 13 is the attorney fee provision. In Chapter 7, although the attorney fees are less, because the lesser amount of work required and because it is usually lasts only 3-6 months, the Bankruptcy Code requires the attorney fees be paid prior to the filing of the case. The US Trustee for the District of Kansas has advised attorneys in this District that, in their opinion, any agreement providing for payment of attorney fees after filing in a Chapter 7 is not allowed under federal law (although, in some cases, assignments of future tax refunds are permitted if filed at the time the case is filed). Some attorneys may disagree with the US Trustee’s interpretation. If so, you should ask them to show you, in writing, a Bankruptcy Court decision in Kansas(less than 10 years old) proving they are right. If they can’t, you must decide whether it is in your best interest to hire that attorney.
However, in Chapter 13, attorney fees can be included in the repayment plan along with the secured debts, and are paid over the life of the plan. So, if you can’t come up with the attorney fees in advance, you can still file and get immediate protection.
When Chapter 13 is a Better Choice than Chapter 7
If you fall into one of the following categories, Chapter 13 may be a better choice for you:
1. You have a large amount of secured debt; or
2. You are behind on your payments on the secured debt; or
3. You owe more on your secured property than it is worth (for example, your car is worth $3,000 and you owe $6,000 on it); or
4. You owe non-dischargeable debts such as taxes, student loans or back child support; or
5. You cannot afford the attorney fees upfront, but need immediate relief.
When the attorney meets with you, he will go over your specific situation, and discuss with you which option would work better for you.
Disclaimer: Cloon Legal Services, is a Debt Relief law firm as defined by 11 U.S.C. 528. We help people file for Kansas Bankruptcy Relief under the Bankruptcy Code.The information contained on this website is not to be construed as legal advice. It is not intended to solicit or form an attorney-client relationship. We do not guarantee any result and prior results do not guarantee a similar outcome. This is an attorney advertisement and this website is for informational purposes only.