Filing Chapter 13 Bankruptcy: Making The Right Decision For You
Not everybody has a willy-nilly choice between Chapter 7 and Chapter 13 bankruptcy – it’s supposed to be a function of your budget. If you can’t afford to pay your creditors, you should file Chapter 7, and if you can, you should file Chapter 13. Some people are in that middle range where they do have the choice. In general, between the two, I generally steer people toward Chapter 7 unless that is either impossible due to high income or too costly due to nonexempt assets, and/or there are other compelling reasons to file Chapter 13. Even in Chapter 13, a debtor can often still wipe out the vast majority of their unsecured debt if, for instance, the plan is basically mostly paying off mortgage arrears.
People usually file Chapter 13 when they have mortgage arrears, taxes, back child support, a prior case filed within the last eight years or excess income that does not allow them to file for Chapter 7. In Chapter 13, you make monthly payments to a trustee.
One of the coolest things we can do in Chapter 13 but not in Chapter 7 is “stripping” unsecured junior mortgages. If your house is worth less than the amount owed on the first mortgage, we should consider a lien strip in Chapter 13, which not only will mean that you don’t need to pay the second mortgage but will also get it removed from the property records. I am one of Minnesota’s leaders in lien stripping. Having been one of the first to do it, I’ve probably filed more than anybody else, and I also prevailed on a case at the Court of Appeals for the 8th Circuit that resolved any doubt as to the feasibility of lien stripping.
For above-median income debtors, the means test form still needs to be filled out, but it doesn’t really mean very much. The case law simply states that the means test is a starting point for determining a person’s disposable income in Chapter 13. Their actual disposable income for determining their plan payment is based on current/projected income less actual projected living expenses. An above-median debtor needs to be in Chapter 13 for five years, and a below-median debtor has the option of three to five years. The plan can always be shorter if 100% of all creditors are paid off.
A couple of the things about Chapter 13 to consider is that you will need to commit your disposable income into your plan for three to five years, and if your income goes up during that time frame, your plan payments could go up as well. Also, while you are in Chapter 13, if you inherit money or are injured and settle a personal injury claim, that will likely need to be paid into the plan. While Chapter 13 stays on your credit for seven years, as opposed to 10 years for Chapter 7, the fact is that you shouldn’t plan on going back into debt until you are done with a Chapter 13 plan, whereas, in Chapter 7, it’s a virtual nonissue on your credit after three years.
Learn More About Chapter 13 – Talk To A Knowledgeable Bankruptcy Lawyer
If you’re considering bankruptcy, whether Chapter 7 or Chapter 13, you should talk with an attorney about your financial situation. Lawyer Tim Theisen at Theisen Law can walk you through your options for getting out of burdensome debt. He’s a skilled bankruptcy lawyer with over 30 years of experience.
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