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.
There are certain income requirements to file a Chapter 7. That amount typically adjusts for inflation twice per year. That amount varies based on your household size and by state.
In the State of Florida the amounts are as follows:
One person household: $60,429
Two-person household: $74,131
Three-person household: $83,396
Four-person household: $100,476
Five-person household: $110,376
Six-person household: $120,276
Dependents in your household include children under the age of 18. If custody is split, we usually factor in how much time the child spends at your residence and how many children there are. If custody is split 50/50 and there are two children, we would list a two-person household. Children under the age of 24 that are in school full-time can also be considered dependents or any disabled children. If there are elderly parents living in the household, they can be considered in the household size or any other relatives. However, if any person is included in the household size, we need to include their income and expenses as well. Social security does not count towards the income amount.
If you are still over that amount, there is still a potential you could qualify for a chapter 7 if you “pass” the long form of the means test. The means test is required for all those debtors who are over the “median”. The test determines your eligibility for a Chapter 7 or the amount of your plan payment in a Chapter 13. It uses some of your actual expenses and some expenses are determined by the IRS guidelines based on your household size and county where you reside. It can get a bit complicated, so it is good to consult with a bankruptcy attorney to guide you through the process.
The short answer to that question is sometimes. You cannot lower your interest rate in a Chapter 7.
If your vehicle is underwater or has no equity you have the option to surrender the vehicle to the lender and find another vehicle. There is also another option called redemption which allows you to file a motion to reduce the principal balance. For example, if you owe the lender $50,000 and your vehicle is worth $35,000 you can reduce the principal balance to $35,000 and refinance with another company.
In a Chapter 13, this is called a “cram down”. However, you would need to have owned the vehicle over 910 days prior to filing bankruptcy to be eligible for a “cram down”. A Chapter 13 will allow you to lower your vehicle’s interest rate. This is only a practical solution if you need to file a Chapter 13 for other reasons – like you are paying back mortgage arrears or you’re over the income threshold to file a Chapter 7.
You can also file a motion to value secured property to reduce the interest rate. The interest rate used is called the “till” rate . It’s usually 1% higher than the federal prime rate to account for a possible default. If the federal prime rate is 6.25% then till rate would be a least 7.25%.
There is also a trustee fee of 10% , so unless the federal prime interest rates are very low or you are paying a very exorbitant interest rate, its usually cost prohibitive.
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There are certain income qualifications for a Chapter 7 bankruptcy. Social security income, including social security disability does not count as income on the means test (the test on the bankruptcy petition that determines which chapter of bankruptcy you qualify for). Similarly, veteran disability benefits do not count as income. For example, if you are receiving social security or veteran disability benefits you could make an unlimited amount per month and still qualify for a Chapter 7 bankruptcy.
Some people are surprised that pensions for government work such as teachers, police officers, military, or firemen still count as income. Workers’ compensation benefits also count as income. Short-term or long-term disability from a private company that is not social security are considered income. Regular wages or income from self-employment are considered income. Child support and alimony are considered income on the means test. Even if the income is not taxable, it could still qualify as income on the means test.
The issue of whether money in your account at the time of filing is exempt is a totally different issue than whether it counts as income on the means test. For example, workers compensation, child support and alimony are generally exempt even though they are considered as income on the means test Any money you have in your bank account from one of these sources in addition to social security or veteran disability benefits would be protected from the trustee.
We can exempt up to 75% of wages in your bank account. However, self-employment income is not exempt. It is important to have an attorney help you evaluate your candidacy for a Chapter 7 bankruptcy and to ensure you maximize your property exemptions.
