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Chapter 13 Bankruptcy

I.  Introduction

Chapter 13 bankruptcies are very complex.  We do not recommend filing in pro per or using a bankruptcy document preparation service.  Always make sure that your attorney knows Chapter 13 bankruptcy law, has experience confirming chapter 13 plans within the district, and is insured.

Trustee’s have a wide degree of latitude and tremendous amount of discretion in recommending plan requirements and administering the chapter 13 payment plan.  No two do it the same way even in the same district.  Each and every bankruptcy judge also has a specific set of standards for how they approve chapter 13 plans and may approach the wide array of issues that can arise in a Chapter 13 bankruptcy on a case-by-case basis as well.

II.  Common Pitfalls

It is important to understand that Chapter 13 bankruptcy law is also a business.  Attorneys in general, and particularly large firm bankruptcy business models, are based on volume (more clients = more money).  They will take your chapter 13 bankruptcy for little or no money down and may even file it based on the information that you provide them with but often without divulging or explaining a very critical piece of information; namely, that the payment plan as proposed which is based upon your information may never get approved.

They will take your money and file a payment plan based on the information you provide knowing the court may not approve it as filed.  This opens the door for the attorney to charge more to make the amendments and further evaluate your financial information.  If you can't pay then the attorney will also more than likely be protected under the terms of the retainer agreement, will plausibly deny they filed your plan in bad faith based on the information provided, and allow your case to dismiss.

III.  Is my Chapter 13 Plan Feasible?

Many chapter 13 plans are rejected because of what the trustee’s refer to as a “feasibility problem.”  This means that the plan proposed is literally not feasible in light of (1) the debtor’s lack of income to support the monthly plan payment, (2) the overall amount to be paid to creditors, or (3) for some other fundamental problem.  This often leads to an ongoing pattern of the burden shifting back and forth between attorney and trustee to provide and respond to updated client information.  More time = more money.  More time also further strengthens the attorney’s position should the case wind up being dismissed.

Working with your attorney to craft a feasible and confirmable plan upfront is an indispensable part of the process.  Do not assume that your attorney has maximized all of your available exemptions and addressed all of the filing nuances in light of your specific financial situation.

We will not propose your chapter 13 plan unless we are reasonably confident that it will be approved. We'll work with you in order to draft the best possible plan under the circumstances.

As a result, we charge higher up front fees for Chapter 13 planning work but never more than the District standards.

IV.  What's the Difference between Chapter 7 and Chapter 13 Bankruptcy?

A Chapter 13 Bankruptcy is a debt consolidation plan administered by the federal government through the United States Trustee's Office approved by the Federal Bankruptcy Court.

Instead of cancelling out your debts as in a Chapter 7 Bankruptcy, in a Chapter 13 Bankruptcy you may repay your debts, often for pennies on the dollar, pursuant to a Court approved repayment plan.

Private debt consolidation companies do not have the jurisdiction or authority that the Bankruptcy Court does to make your creditors accept your plan payments but purportedly offer a similar service.  Avoid these companies like the plague.

Another key difference is that consumers may also strip unsecured junior liens on their homes and repay them at a fraction of the cost in Chapter 13 bankruptcy.  If you are underwater on your home and your 2nd mortgage payment is creating problems then Chapter 13 Bankruptcy with a lien strip may be a good option for you.

V.  Costs

As of 4/25/2012 the fees in a Southern District consumer case are as follows: (1) filing fee for Chapter 13 is $381, (2) Attorney's fee $3300, (3) lien strip motion $450.  For a full Southern District Fee Schedule click here.  This information is periodically updated and may differ depending on the region.  Contact us for free initial consult 619 794 0460, This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

VI.  Why File Under Chapter 13?

There can be a lot of benefits for filing under Chapter 13 of the United States Bankruptcy Code.  The foregoing is not an exhaustive list and is meant to help demonstrate the most common types of Chapter 13 filers - many others exist.  Do not rely on these representations.  Consult with an attorney regarding the specific facts of your case before making a decision.

  • Debtors who fail the Chapter 7 means test but still wish to discharge the bulk of their debt pursuant to a repayment plan
  • Debtors who could afford their monthly mortgage payments on their 1st and 2nd home mortgages if: (1) their second mortgage lien were stripped and remaining debt reduced to pennies on the dollar, and (2) the property value has sunk so low that the second mortgage loan is entirely unsecured.  In which case, you may be able to file a motion to strip the lien and repay your 2nd mortgage pursuant to the terms of the Chapter 13 plan
  • Debtors who feel an ethical/moral obligation to repay some of their debts rather than discharge them under Chapter 7 Bankruptcy and not pay anything on them
  • Less harm to your credit score than a chapter 7 bankruptcy

VII.  Conclusion

If you are considering Chapter 13 then we strongly recommend that you contact an attorney right away.  We offer low cost chapter 13 payment plan calculations and means testing given the facts of your case.  (619) 794 0460