A Chapter 13 does not negotiate your debts. When you file a Chapter 13 bankruptcy, your creditors get notified as part of the process. The creditors have 9 weeks to file a claim.
If they do not file a claim, they don’t get paid any distribution and that debt still gets discharged. You do not necessarily pay 100% of your debt back in a Chapter 13 bankruptcy. The amount of the payment is based on your income and expenses. They look at your gross income, the payroll deductions, and the disposable income in your budget.
There is another basis for determining your payment called the means test which uses some of your actual expenses, while other expenses are compared to the IRS guidelines for your household size and county where you live. For example, it would list what the food budget should be for a household size for four people living in Hillsborough County.
The means test will arrive at an amount of what you would need to pay to your unsecured creditors during your Chapter 13 plan. The amount of the plan is not discretionary, it’s not negotiated, rather there is a precise formula for determining the payment.
You want to be sure to capture and account for all of your expenses to get your payment as low as possible. Whatever the amount, your creditors will receive a pro rata distribution which is paid monthly by the trustee and at the end of your plan the total amount of your debt is discharged.
There are several reasons that a potential client might consider a Chapter 13 verses a Chapter 7 even if they are eligible to file a Chapter 7 bankruptcy case.
A Chapter 13 bankruptcy allows you to restructure your debt such as paying back mortgage arrears. For example, if you are $50,000 in arrears in your mortgage you can spread that payment over 60 months to repay in a Chapter 13 plan. A Chapter 13 bankruptcy might also potentially lower a car payment by lengthening the payment terms or lowering your interest rate.
A Chapter 13 bankruptcy also allows certain debts to be discharged which are not dischargeable in a Chapter 7 bankruptcy such a property settlement /division of asset award in a divorce case. This is distinguishable from alimony and child support awards which are not dischargeable in either bankruptcy Chapter. A divorce attorney fee award is also not dischargeable in either Chapter of bankruptcy if the attorney secured an alimony or child support award.
Another debt that is dischargeable in a Chapter 13 and not a Chapter 7 is “willful and malicious injury to property” such a criminal mischief. This is also distinguishable from damage caused by driving under the influence which is not dischargeable in either a Chapter 7 or a Chapter 13 bankruptcy. If you have any questions about whether a particular debt is dischargeable it is best to consult with a bankruptcy attorney for guidance.
You must list your personal injury case as a potential asset for the bankruptcy trustee.
In a Chapter 7, the trustee can collect 100% of what a debtor gets from their personal injury settlement. This applies to any dates of accident that occurred prior to filing the bankruptcy petition where the statute of limitations has not expired.
If you have already hired a lawyer to represent you in your personal injury case, you would want to ask them how much you might expect to receive from the personal injury case and how long will it take for it to settle or go to trial. You might decide to either wait until your personal injury case settles and use it for reasonable expenses before filing your bankruptcy case so the trustee cannot take it.
Alternatively, you might decide to not wait and file your bankruptcy case and forgo your settlement proceeds. It works a little differently in a Chapter 13. The trustee in a Chapter 13 case is entitled to at least 50% of your settlement proceeds whether your accident happened before you filed your case or while your case is pending.
Usually, the Chapter 13 trustees will agree to let the debtor keep 50% of the net proceeds of the case, where the Chapter 7 trustee’s will take 100% of the proceeds. When you consult with your bankruptcy attorney definitely let them know about your personal injury case. You wouldn’t want to file the case and then unexpectedly have the trustee take your money. Also, communicating with your personal injury attorney is also critical.
The short answer is yes, it can. You are obligated to disclose the last twelve months of profits and losses from gambling on your bankruptcy petition. If you do receive winnings and it’s listed on your tax return as income, that also needs to be shown on the bankruptcy petition for the last two years. Gambling can affect your ability to file for bankruptcy.
The first issue is whether you have taken out credit lines or personal loans for the purpose of gambling. This is a good faith issue in terms of whether you intended to repay your creditors or if you were purposely going to default. The objective of borrowing money hoping you would make more gambling will not be a valid excuse. Similarly, having a gambling addiction would not be a valid excuse either.
The trustee’s perspective is that if you have $12,000 a year spent on gambling that is $1,000 per month that you should have used to pay your unsecured creditors. The case law also supports this as well. A Chapter 13 might be an option if you have gambled since you are trying to pay creditors back to some extent. Otherwise, depending on the amount you gambled you might have to wait a year of no gambling to file your Chapter 7 bankruptcy case.
If it’s minimal like a few hundred dollars that is less of a concern. However, if you plan to file for bankruptcy, abstain from any type of gambling so you do not compromise your case.
People often ask if they can keep their existing vehicles when they file for bankruptcy. The answer is yes. You can either surrender the car if you do not want to keep it or you can keep it and reaffirm the debt.
If you are current on your vehicle payments the lender will send what is called a reaffirmation agreement for you to sign. Essentially that means you are reaffirming or agreeing to make good on your existing contract with the car lender. The terms of the loans remain the same. You are not refinancing or re-negotiating the terms of the loan or interest rate on the loan.
If you are not confident that you can afford the vehicle payments going forward, we do not recommend signing the reaffirmation agreement because if you default on the loan, the lender can come after you for the deficiency if they sell the car for less than you owe on it. For example, if your car is worth $10,000 but you default and the lender sell it for $8,000, you will owe the lender $2,000 which they can try to collect against you.
Once you execute the reaffirmation agreement your payments should start reporting positively to the credit bureaus that you are making timely payments. This will also help rebuild your credit score once your bankruptcy is complete which is a great opportunity for your fresh start. We can help assess your car value and look at your budget to help you decide the best course of action with your vehicle.
