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There are two types of bankruptcy that individuals usually file. The one discussed here is Chapter 13; the other is Chapter 7.
What is Chapter 13 Bankruptcy?
Chapter 13 is a court-approved partial repayment of debts. The partial repayment happens through a plan, which lasts three to five years–depending on your applicable commitment period which, in turn, depends on your income. Big picture: At the end of the plan payments, the remaining balances on most debts are discharged (credit cards, medical bills, unsecured personal loans, unsecured junior mortgages, etc.)
The Chapter 13 Plan
In Chapter 13, your lawyer proposes a plan for the Court to approve. The plan is a written document, usually of about five pages. If the plan complies with the bankruptcy laws, your creditors cannot refuse to accept it. This is the primary power of Chapter 13 bankruptcy.
If you file Chapter 13, you make monthly payments as set forth in the plan. This money is sent to the Chapter 13 trustee, a quasi-governmental official, who holds the money pending court approval of your plan. Once your plan is confirmed by the court, the trustee begins to make payments to your creditors in the manner provided in your plan.
The calculation of attorneys’ fees in Chapter 13 bankruptcy cases is quite different than in Chapter 7 cases. Massachusetts Bankruptcy Local Rules permit a standard Chapter 13 fee of $3,500 for pre-confirmation and $2,000 for post-confirmation services without an attorney needing to file a special itemized explanation of the attorney fees. This $5,500 fee is the amount probably charged by most attorneys in Massachusetts for Chapter 13 cases; but not by our office.
For Chapter 13 bankruptcy cases the Crossley Law Offices usually charges clients only $2,000 upfront for an individual Ch. 13 and takes the remaining $1,500 Chapter 13 fee through the plan (which comes to only $25/month for the 60 month plan). For joint Ch. 13 cases our office charges clients only $2,800 upfront and takes the remaining $1,700 Chapter 13 fee through the plan (which comes to only $28.33/month for the 60 month plan). For the level of experienced bankruptcy lawyers on your side, our fee is considerably lower than most other attorneys in Massachusetts, but we think it’s a fair and reasonable fee to charge people who are struggling through increasingly difficult economic times.
Remember, any portion of the attorneys’ fee that is put into your Chapter 13 plan usually comes out of the share of money that your creditors would normally get. The bottom line is it doesn’t matter if you pay 75%, 30% or 5% of your debts to your unsecured creditors because all of your unpaid balances are discharged once your plan time-frame has been completed.
Don’t make a costly mistake. For a FREE bankruptcy consultation contact the Crossley Law Office on-line, fill out the contact form below, or call (508) 655-6085 today.
Length of Your Payment Plan
How long does a plan last? This is determined by your income and household size. If you are above-median income based on household size, your plan is five years (60 monthly payments). If you are below median income, your plan is three years (36 monthly payments).
Why do People File Chapter 13?
The most common reason people file Chapter 13 is that they need debt relief and Chapter 13 is the only type of bankruptcy they qualify because of their income. The bankruptcy laws require that most people who can afford to pay back some debts do so in Chapter 13. That’s what the bankruptcy means test is all about. Most, but not all, people who are above-median income only qualify for Chapter 13 because of the means test. In Massachusetts, here’s the median income by family size (for cases filed after May 1, 2012):
- Family of one: $55,185
- Family of two: $66,200
- Family of three: $82,873
- Family of four: $102,194
- Add $7,500 for each additional family member.
Another common reason why some people file Chapter 13 instead of Chapter 7 is to keep property they would otherwise lose in a Chapter 7. No one ever loses property in a Chapter 13. Chapter 13 is simply not a liquidation chapter. It is a reorganization chapter. Sometimes this is very important to people. Many people have very limited property and would lose nothing in a Chapter 7, but some people do have non-exempt property–like excess equity in houses or cars–that would not be protected in Chapter 7. When these people need debt relief, often the best way is through Chapter 13. Since 2011 and the modernization of Massachusetts exemption laws, fewer people need Chapter 13 for this reason.
It is usually very quick and easy for us to determine if you have non-exempt property. You can contact us to find out.
What are some Advantages of Chapter 13?
First of all, it gives you the ability to make a single debt payment that is affordable based on your income. You will still have to make most mortgage and car payments, but your unsecured debts are consolidated into the Chapter 13 plan. Secondly, a plan gives you the ability to do other things that are relevant for people in some situations. For example, in Chapter 13 you can stop foreclosures by curing mortgage arrears, cram down car loans, strip off wholly unsecured second and third mortgages, and pay off non-dischargeable tax debts. Ultimately, your plan is based on what you want to accomplish and also on your income, expenses, assets and debts.
Chapter 13 bankruptcy will stay on your credit report for seven years. (Chapter 7 remains on your report for 10 years).
What Will My Chapter 13 Payment Be?
It depends on your income, assets, expenses and debts. What you will pay is based on a means test and budgetary test that incorporates your income, expenses, secured debt payments and other factors. We will do our best to tell you approximately what your payment will be if you opt for a free consultation. Determining a Chapter 13 payment amount is one of the specialized parts of the Chapter 13 process, and it is one of the reason you need an honest lawyer who really knows Chapter 13 bankruptcy and all the permissible means test deductions. Many of these deductions are not common knowledge, even among lawyers.
Do You Qualify for Chapter 13?
The debt limits for Chapter 13 are $360,475 for unsecured debt and $1,081,400 for secured debt. If you have more in either category of debt, you do not qualify for Chapter 13 and must file Chapter 11 if you want to reorganize.
Otherwise, as long as you are an individual with regular income who can afford to pay your living expenses, secured debt payments for property you want to keep, and an extra amount as a Chapter 13 plan payment, you qualify for Chapter 13 bankruptcy.
What’s the Big Picture?
The bottom line about Chapter 13 is this: You pay what you can afford after your reasonable expenses for a set period of time, then you emerge from bankruptcy with a clean slate and a fresh start.
Don’t make a costly mistake. For a FREE bankruptcy consultation contact the Crossley Law Office on-line, or call (508) 655-6085 today.