Chapter 13 Bankruptcy in Ohio
Bankruptcy Assistance in Cleveland and Akron
Chapter 13 is a section of the Bankruptcy Code which allows individuals who are experiencing financial difficulty to pay their creditors over time while under the protection of the Bankruptcy Court. As with a Chapter 7, at the moment of filing the bankruptcy petition, the Bankruptcy Court issues an order, preventing creditors from taking any action against you. Chapter 13 can be as beneficial as a Chapter 7 bankruptcy for people struggling to pay debts. A Cleveland bankruptcy attorney from Borders and Gerace can help you determine which form of bankruptcy is best for your situation.
What is a Chapter 13 bankruptcy?
The general concept of a Chapter 13 is that the debtor makes monthly payments to a Chapter 13 trustee, who, in turn, pays creditors according to their status. It is somewhat like a debt consolidation or a program offered by a debt counseling service. However, there are significant differences between what is possible in a Chapter 13 and what a credit counseling service can offer. Credit counseling services and other nonprofit credit counseling services perform a good service, and we often recommend that this option be explored prior to filing bankruptcy.
However, many of our clients have attempted, without success, to follow a counseling service’s plan report where the monthly payment amount was so high that they literally could not maintain a minimal standard of living. By contrast, even though in a Chapter 13 you are required to devote your disposable income to the plan, monthly payments often are less than what is required in a counseling service’s plan. Also, some clients tell us that, even though they are making payments diligently to the counseling service, creditors continued to harass them. This harassment must stop in a Chapter 13. Finally, most unsecured creditors in a credit counseling plan do not stop charging interest. So, the time required to pay the debt may not be significantly shortened over the normal payment schedule. Typically, in a Chapter 13, all interest stops on unsecured debts.
Why should I file Chapter 13?
Whether you should file a Chapter 13 instead of filing under another chapter, such as Chapter 7, you still need a detailed analysis into your financial situation. You should consult with an experienced Borders and Gerace attorney prior to making this decision.
However, some factors suggesting that a Chapter 13 should be filed include:
- Are you faced with a foreclosure or seizure of property?
If your home mortgage company has filed a foreclosure action or other property, such as a vehicle, is threatening to be seized, you have little choice if you want to save this property. You must file a Chapter 13 proceeding. You will be able to catch up on the past due amount (“cure the arrearage”) over an extended period of time under the protection of the Bankruptcy Court and you will not lose the property.
- Do you have property that would be lost in a Chapter 7?
As explained in the page concerning Chapter 7, one of the duties of the Chapter 7 trustee is to “liquidate” (sell, if necessary) property, and then distribute the proceeds to creditors. If you have property which would be at risk in a Chapter 7 and you do not want to lose this property, then you will want to consider a Chapter 13. For example, if a Chapter 7 debtor has a vehicle that is paid for (and the vehicle is worth enough), the Chapter 7 trustee may well sell the vehicle. In a Chapter 13 framework, the vehicle is not lost.
- Are your nondischargeable debts large in comparison with your dischargeable debts?
If the bulk of your debt is nondischargeable debt such as student loans or most taxes, and you need protection from your creditors, a Chapter 7 proceeding will not be successful in the long run. Although the automatic stay will protect you from creditor harassment up until the time that the Chapter 7 discharge is granted (normally about 90-150 days from the date that the petition is filed), after the discharge, a creditor with a nondischargeable debt is free to start up collection efforts again. The Chapter 7 discharge, then, although it will cover some debt, will leave most of the debt still owed. The answer? File a Chapter 13, if possible, to pay the debt while under the protection of the Bankruptcy Court.
Chapter 13 Parameters
Only an individual with regular income who owes less than $336,900 in unsecured debt and $1,010,650.11 in secured debt can file for Chapter 13. These figures are subject to change. Contact a Borders and Gerace attorney for updated figures. These debts must also be non-contingent and liquidated—meaning that they must be for a certain, fixed amount and not subject to any conditions or bona fide disputes.
How does a chapter 13 work?
As mentioned above, in a Chapter 13 plan, the debtor makes monthly payments to a trustee, who pays creditors. To make these monthly payments, you must have some source of income that is regular, such as employment income or rental income. You are required to pay all your disposable income to the trustee for 36 months or more. The trustee will pay some creditors in full. These include secured creditors and creditors who hold priority debts, such as most tax debt. Other unsecured debt will also be paid by the trustee, but, depending on various factors, you may not be required to pay these debts in full. If, at the end of the plan, there remains a balance on the unsecured debt, the balance is discharged. There are some exceptions, such as student loans, which we can further discuss with you. You do not lose any property in a Chapter 13, unless your plan proposes surrender of this property.
Length of Chapter 13 Plan
Typically, a Chapter 13 plan lasts between 36 months and 60 months. The length of the plan depends on several factors such as the amount of your average monthly gross income calculated over the six month period prior to the month of filing, the monthly amount of your disposable income, the amount and kind of debt that you have, and the value of your nonexempt property. If the historical average monthly gross income is over the state median, you will be put into a 60 month plan, unless you can pay 100% of your unsecured debt within a shorter period of time.
For more information regarding Chapter 13 bankruptcies, call 216-766-5704 today!