Chapter 13 Bankruptcy Plan Duration

Chapter 13 bankruptcy allows you to repay your creditors spread out over a 3 to 5 year repayment plan. In a Chapter 13, you can stop a foreclosure, pay back the IRS and stop a tax lien, pay unsecured creditors at 0% interest, and sometimes at less than the full amount, and get a car out of repossession. It has many uses and benefits.

Unlike Chapter 7 bankruptcy, Chapter 13 bankruptcy will last for a duration of time. As mentioned above, a Chapter 13 will last for 3 to 5 years. But what determines exactly how long it is? First, if you are above the means test , which is discussed elsewhere on my website, you are required to be a five-year (60 month) repayment plan. If you can pay all of your creditors in full before that time, the court may allow you to schedule a shorter plan.

If you are below the means test, and you are able to repay all creditors as required, you can schedule a plan to be a short as three years or 36 months.  Under no circumstances can you initially at filing schedule plan to be longer than 60 months or shorter than 36 months. The Chapter 13 trustee will sometimes proceed for another month or two beyond the 60 month limit if you were finishing up your payment. But you cannot extend it beyond that length.

In some cases, if all creditors are paid as required, a plan may end before the 36 months. However, you cannot schedule the plan to be shorter than 36 months at the filing. It only happens when the payments have actually been made. You are not required to continue a plan once everything is paid in full.

For the most part, the Court and the Chapter 13 trustee are pretty flexible in accommodating plans within the 36 to 60 month window. Your bankruptcy attorney should discuss what will work best for you. In some cases, a longer plan is better because it will make your payment lower. For some filers, a shorter plan is preferable because it allows them to wrap it up quicker and get on with their lives. Calculating your payment and determining the duration is an important part of the process.

Speaking with an experienced bankruptcy attorney can make sure that it is done right. If you would like to discuss Chapter 13 bankruptcy, or you have any questions about the process, feel free to call 412-414-9366 and set up a free consultation. I would be happy to look at your situation, see if you qualify, and answer your questions.

Funding Your Chapter 13 Bankruptcy

Chapter 13 bankruptcy plans require regular automatic payments to be made to the Chapter 13 bankruptcy Trustee. This can generally be done in one of two ways.

The first way is a wage attachment served directly on your employer and payroll department. A wage attachment motion will be filed in the Bankruptcy Court and signed by the bankruptcy judge. I would then take the signed order and serve it on your payroll department. In this case, payments will come directly from your paystub, before reaching your bank account, as a voluntary garnishment. If you change jobs, you will need to let your bankruptcy attorney know right away, so that a new wage attachment can be filed.  This method does not cost you any money. It is your responsibility, however, to make sure that the payments remit every paycheck.

The second method for funding your Chapter 13 bankruptcy plan is through a direct bank attachment. This is done through the website tfsbillpay.com . There is a nominal fee for the service, but it allows you to make payments directly from your bank account that are secured and easily trackable. Once again, it is your responsibility to make sure that the payments come out every month, or whatever frequency that you choose to make them. 

The method that you choose will depend on your circumstances and wishes. If you do not want to have your employer know about your case, the bank attachment is the best choice. Also, if you do not receive regular paystubs, or your income varies widely, the bank attachment is probably the best option.

If you wish to avoid any fees, or if you believe it is simplest for the money to come out before it hits your bank account, the wage detachment is the best option. You can discuss these options with your bankruptcy attorney in more detail. If you’re considering filing Chapter 13 bankruptcy and have any questions, feel free to reach out and set up a free consultation by calling me at 412-414-9366. I would be happy to discuss your situation and see if there is a good bankruptcy option for you.

Liquidation Alternative Test

The liquidation alternative test is a somewhat confusing aspect of bankruptcy law. It requires debtors to repay unsecured creditors for any amount above the exemptions allowable for their property. Let me give a basic example.

Let’s say your house is worth $100,000 and it is owned outright with only you on the deed. With no mortgage or any other liens, you have $100,000 in equity. Under the bankruptcy code, you can exempt roughly $25,000 of this equity. This leaves $75,000 in equity that is not exempt. If you were to file a Chapter 7 bankruptcy in the scenario , the United States Trustee could theoretically liquidate your house and use this $75,000 in unexempt equity to pay your creditors! Obviously, this is not a good option.

The alternative to liquidating your home would be paying back your unsecured creditors up to the $75,000 in unexempt equity. Now, in this example , that may prove to be impossible as it is a lot of money to repay. However, in many examples the unexempt equity is much less. Let’s try a different but similar scenario.

Let’s say your home is still worth $100,000, but you also have $40,000 remaining on your mortgage. You also have a $10,000 tax lien . Finally, let’s say that you have a $15,000 home equity loan. That is $65,000 in liens on your $100,000 home. If this scenario you have $35,000 in equity of which $25,000 can be exempted. That leaves $10,000 in unexempt equity under the liquidation alternative test. In this scenario you can repay up to $10,000 to your unsecured creditors to satisfy the test.

If you owe $75,000 to your unsecured creditors, the balance of $65,000 is discharged in the chapter 13 bankruptcy.

So, it will be very important to determine several things when looking at the liquidation alternative test. The easiest thing to determine is what you owe. You can simply do that with mortgage statements and tax statements.  The trickier thing to figure out is what your home is worth. That may require a formal appraisal or a realtor assessment. Once you have both of those numbers, it will be easy to determine.

It should be noted, the liquidation alternative test does not just apply to real estate. Any property that you own that goes beyond your ability to exempt it  is potentially an issue. This may include cars that are owned outright, savings in a bank account, collectibles or antiques, or basically any other property. However, homes are the most common issue.

If you were considering filing bankruptcy, call us at 412-414-9366 to set up a free consultation , I would be happy to sit down and determine if the liquidation alternative test or anything else will be an issue with your filing.

Financial Resolutions

New Year’s is a time to both reflect and look forward. It’s also a time of the year when people make resolutions. A pretty common resolution to clean up your finances. What are some things that you should consider when resolving to clean up your finances?

The first thing I would suggest considering is whether or not you are able to pay down the balances on your outstanding debt, especially unsecured debt like credit cards. If you are continuing to aggressively pay down these balances, great, keep it up! If, even after you make payments to your creditors every month, the balances either stay the same or even go up, you should consider whether bankruptcy is an option. Chapter 7 bankruptcy may completely wipe out your unsecured debt. If you don’t qualify for Chapter 7 bankruptcy, a Chapter 13 bankruptcy can at least help you freeze your balances and stop the high interest payments.

A second thing to keep in mind when looking ahead is your secured payments like mortgages and cars. If you have a mortgage with an adjustable interest rate, you should plan ahead. With interest rates increasing you may need to make a higher monthly payment going forward. This is something to keep in mind when budgeting. If you need a new car, you should consider your budget as well. If you’re making payments that are handling your other debts, you were probably in good position to get a new vehicle. If you’re falling behind, or struggling to keep up, it may be best to try to get one more year out of your car.

Finally, you should consider sitting down and making a detailed budget. I mentioned this previously when considering whether or not to buy a new car. It sounds simple, but it really does help to sit down and write out all of your expenses, from mortgages and car payments all the way down to small things like streaming services and daily coffee trips. It may help you realize things that you can easily cut out. It may help you look at places to tighten the budget. If your income is going to go up, it could give you the confidence to invest more money or even plan a trip you have been waiting to take.

Personally, I occasionally go through my own budget to get a better feel for my finances. I think it helps.

If bankruptcy or possibly a debt settlement are in your plans for 2023, call us at 412-414-9366. I would be happy to set up a free consultation and discuss your situation. Now is a good time to think about your financial situation and whether or not you are in a good place or if you need some help.

The Problem of Rising Interest Rates

The federal reserve has raised the baseline interest rate from 0% to 3.75% in the last several months, and the rate is projected to continue to increase. This has an incredible effect on the how much it costs to service debt. Everything from mortgage payments to car payments to credit cards to personal loans will become more expensive to service or acquire. This will make it easier to accrue large amounts of debt and harder to pay the debt that you already have.

Hopefully, if you already have a mortgage, the payment has a fixed interest rate. Variable interest rate mortgages stand to increase greatly in the coming months and years. Fortunately, there are not as many variable interest rate mortgages as there once were, especially before the financial crash of 2008 and 2009. However, if you have a variable interest rate loan, you should watch your mortgage statement closely in the coming months as the payment could go up significantly. Also, if you are seeking a mortgage or any loan in the near future, you should absolutely avoid variable interest rates.

Consolidation loans will also get more expensive. This makes it harder to consolidate a collection of credit card debt under one loan. Chapter 13 bankruptcy may be a good alternative option as creditors are always repaid at 0% interest over the course of the bankruptcy plan. Therefore, increasing interest rates do not make a chapter 13 bankruptcy repayment plan more expensive. This is an important consideration because interest is often the hardest part to get under control with unsecured debt. Chapter 13 bankruptcy locks in your current amount and actually gives you a target to pay off. Your balances will actually go down when you stop having to pay high (and getting higher) interest rates.

There is no real good advice for how to deal with higher interest rates. They affect everyone and make everything more expensive. The idea is to decrease the attractiveness of taking out loans and therefore slowing down the economy. To whatever extent you can avoid taking out loans, obviously you should do so. But unfortunately that is not always an option in life. If you need to buy a home you can’t just wait until interest rates drop. One positive side effect of higher interest rates when buying a home is that it tends to decrease the actual cost of the home, sometimes greatly. If you need to buy a home now, the best case scenario would be to pay the higher interest rates in the next several years and then refinance to a lower rate when interest rates drop.

Higher interest rates are a problem for almost everyone. If you have been considering a loan consolidation but now find it less affordable, contact us at 412-414-9366 to set up a free consultation. Chapter 13 bankruptcy may be an option to step outside of the pain of higher interest rates.