Chapter 13

Chapter 13 is known as a debt consolidation or repayment plan bankruptcy.  It is typically used by those who cannot qualify for Chapter 7 or those who wish to repay some or all of their debt.  A Chapter 13 Discharge will eliminate your dischargeable debts and allow you to have a fresh start.
 
If you own any non-exempt property, you must pay at least as much to your creditors as they would receive in a Chapter 7 or you cannot complete your plan.  Most debtors do not own any non-exempt property and thus can keep all of their property without paying more.
 
Chapter 13 is a form of bankruptcy that works just like a consolidation loan, except there are many advantages to Chapter 13. Chapter 13 is the most powerful form of bankruptcy because it protects co-signers on your debt, allows you to catch up on house and car payments, pay off IRS and Child Support debt, and if you pay back greater than 80% of your unsecured debt, you can get credit re-establishment through the trustee's office. Under Chapter 13, you file a case which has a "Plan" to repay some or all of your debts. The amount of your payback depends mostly on your budget, if you make more money, you usually have to pay back a higher percentage. You total up all of your secured debts, and pay them back with interest over 3 to 5 years, plus priority debts without penalities or interest (IRS, Child Support arrearages, etc.) over 3 to 5 years, plus as much of your unsecured debt as you can afford. The unsecured debt does not accrue interest, and since unsecured debts often have high interest rates (I have seen as high as 150%!!), the Chapter 13 payment is often substantially lower than what you would be paying on your debt if you paid it yourself.
 
Why is a Chapter 13 better than a consolidation loan?
Many reasons. First of all, there is no credit check. Almost anyone can file a Chapter 13. Next, your interest paid is greatly reduced. All of your unsecured and priority debt is paid at 0.0% interest. Secured debt is usually paid at no more than 12% interest, although creditors can (they rarely do) demand payment of contract rate if higher. Lastly, if your creditors do not file a proof of claim (which is a demand for payment) they do not get paid. The deadline for most proofs of claim is 90 days after your initial meeting with the trustee (called a 341 meeting of creditors). In many cases, creditors either forget to file a proof of claim, or they file one late. In either case, you do not owe them any money, it's as if you paid them. This can shorten the length of your payment plan.
 
How does it work?
First you meet with your attorney and determine whether or not Chapter 13 would be beneficial to you. You pay any up front fees involved, then your attorney files your case. 30 days after your case is filed your first monthly payment to the trustee is due, and around that time you have a meeting called a 341 meeting of creditors. If you have been honest with your attorney, and if your attorney is competent and experienced, you will likely be confirmed without a confirmation hearing.
There may be some additional paperwork during the first six months of your case as claims are filed. This paperwork includes but not limited to: objections to claims, motions to value claims, motions to avoid lien, responses to motions to lift stay, and responses to objections to confirmation.
Your monthly payment is usually taken directly out of your paycheck, so you don't have to worry about making payments except for the first few while your employer sets up the automatic deduction. If you are paid more frequently than once a month, your monthly payment is divided to come out of each paycheck equally, unless you choose otherwise.
 
Do I lose all my things?
No! Just like under a Chapter 7 Bankruptcy, you are allowed to keep all of your exempt assets (things like home, cars, furniture, appliances, clothing, jewelry, retirement). For most clients, all of their property is exempt. In Chapter 13, you keep ALL of your property, no matter how valuable, and you just increase your Plan payment based on the amount of non-exempt property (if any) that you own.
 
What is an "automatic stay?"
The automatic stay works like a shield to protect you from your creditors while you are involved in Chapter 13. The Chapter 13 shield also protects your co-debtors. During a Chapter 13, your creditors cannot contact you, harass you, collect money from you, report to credit reporting agencies, cut off your utilities, fire you from your job for filing, kick you out of your home, repossess your belongings, and so on. If this is your first bankruptcy case the automatic stay lasts the entire time you are in your Chapter 13, and there are only limited ways a creditor can "lift" the automatic stay. If you have filed bankruptcy in the last year and that case was dismissed, you will have to ask the judge to extend you another automatic stay.
 
How do I pay for this?
Usual attorney's fees range from $3,200 to $4,500 per case (but some or all of those fees can be included in your Chapter 13 payment) and the government charges you $310 to file the case, so you are usually looking at an initial cash payment up front of $310 to $3,510 depending on the complexity of your case. Often the "up front" money can be paid in installments as well. If your only concern is the "up front" money, you should not worry because there are always ways to get a case filed.
 
How do I determine if I should file?
You should consult an attorney and discuss your situation. An attorney should be able to review your situation and advise you accordingly. Furthermore, you should demand to be seen by an attorney, not a legal assistant, paralegal, or secretary. Only an attorney can legally give you this advice. If a law firm tries to force you to see a legal assistant, paralegal, or secretary for your initial consultation, you can file a complaint with the
State Bar of Texas.
My office will give you a free consultation to advise you. The consultation is both free and confidential. You can make an appointment by calling 254-752-GARY (4279) to set up a time. Clients are seen by appointment only, so please call in advance.
By Act of Congress and Signature of the President:
 We are a Debt Relief Agency. We help people file for bankruptcy.
Please realize the information contained on this web site should not be construed as legal advice nor does it create an attorney-client relationship between us. It is simply here as a means for me to provide you some basic information for you to use when deciding on whether or not you need to hire an attorney. Because each case is different, it would be impossible for us to provide legal advice on a web site.
Gary Cunha, P.C., Attorney and Counselor at Law
100 N. 6th #604, Waco, TX 76701 254-752-4279
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